North American stock markets moved higher Thursday morning as investors looked past economic data that showed a big jump in U.S. inflation at the wholesale level in February.
They also hoped the damage in the U.S. subprime mortgage market will be contained to that sector. Wholesale prices rose by 1.3 per cent last month, the biggest increase since last November, and much higher than the 0.4 per cent rise economists were expecting. Prices were pushed higher by a big jump in energy costs and the largest increase in food costs in more than three years.
And even more worrisome, prices outside of the volatile food and energy sectors also showed a bigger-than-expected increase of 0.4 per cent last month. A flat reading had been expected.
Toronto's S&P/TSX composite index gained 66.25 points to 12,874.98, with leadership coming from energy and mining stocks.
The Canadian dollar rose 0.14 of a cent to 85.11 cents US.
In the major domestic economic report of the day, Statistics Canada reported that factory shipments fell for the first time in three months in January, down 2.1 per cent.
The TSX Venture Exchange was up 43.95 points to 3,053.42.
Wall Street's Dow Jones industrials was up 36.29 points to 12,169.69. The Nasdaq composite index gained 6.59 points to 2,378.33 and the S&P 500 index edged up 6.13 points to 1,393.36.
The high inflation reading comes a day before the February consumer price index is released.
The figures come at a time when markets have been under selling pressure because investors worry that a rapid slowing of the U.S. housing sector could result in a serious slowdown for the overall economy.
Specifically, investors have looked to serious cracks appearing in the U.S. subprime mortgage market, which lends to people with poor credit, and wonder if the contagion could spread to the more conventional financial sector.
They hope that the U.S. Federal Reserve will respond to these concerns with interest rate cuts to boost the economy. But the Fed would find it difficult to change its stance with inflation running higher than the central bank is comfortable with.
"The bigger-than-expected jump in core prices could raise some eyebrows at the Fed. Despite recent housing sector worries, the Fed remains ever watchful of inflation pressures," said BMO Nesbitt Burns economist Benjamin Reitzes.
"But, while the core monthly increase was unexpectedly high, the year over year rate was steady, which should temper these concerns."
The mining sector, much buffeted this week over concerns on how a U.S. economic slowdown could slow demand for commodities, was up 2.6 per cent.
"We're seeing a bit more recovery and you have metal prices that continue to climb - nickel at another all-time high," said Fred Ketchen, manager of equity trading at Scotia Capital.
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