04:19 PM EST, 02/13/2025 (MT Newswires) -- The Toronto Stock Exchange closed higher on Thursday despite mixed views around the interest rate differential between Canada and the United States following the release of some key U.S. inflation data this week.

The S&P/TSX Composite Index closed up 135.4 points to 25,698.51 points. Among sectors, the biggest gainers were Telecoms and Technology, up 1.65% and 1.92%, respectively, followed by Energy, up 0.31%.

The U.S. Producer Price Index (PPI) for January was released Thursday morning and, like the Consumer Price Index (CPI) released a day earlier, showed inflation is running hotter than expected. The data is likely to keep the Federal Reserve from cutting rates even as the Bank of Canada continues to trim its benchmark interest rate.

A bigger rates differential could lead to a significant depreciation in the Canadian dollar relative to its U.S. counterpart, making imports from the United States more expensive and disrupt trade. This would be unwelcome, especially at a time when U.S. President Donald Trump is rolling out his plan to increase reciprocal tariffs to match tax rates that other nations charge on imports. The tariff increases would be customized for each country, including Canada, with the partial goal of forcing new trade talks.

Veteran Canadian market watcher David Rosenberg has been following all of the issues involved and today when he mapped out what the implications are from this week's U.S. CPI and PPI inputs for the January core PCE (personal consumption expenditures index) deflator, he said they come to plus 0.26% on a month-over-month basis. "Not good, to be sure, but hardly the +0.4% disaster we saw in the consumer price report," he added.

Rosenberg today didn't repeat his warning of earlier this week, after the CPI data, that the next move by the Fed could well be a rate hike. Instead, today he noted "there are now virtually no Fed rate cuts being priced in any longer for 2025."

But, according to National Bank, there is room for the Canada-U.S. rate gap to widen further in coming months "given the non-trivial slack to absorb in Canada." Indeed, the bank still sees scope for further Bank of Canada rate relief. "For now," it said, "inflation and its expectations are not an obstacle."

As background, National Bank noted that in Canada consumer inflation expectations have not experienced the same recent uptick seen stateside and are largely back to 'normal'. Likewise, it noted business inflation expectations are close to, even if not all the way back to, normal. National Bank said: "Breakevens reinforce soft data too. While these are up in the U.S. and Canada, Canadian expectations hover right at 2% and U.S. breakevens have risen faster."

National Bank added, "We'd again stress that expectations aren't at a point that warrant direct Fed intervention (i.e., via rate hikes) but this certainly supports a patient policy posture. It also represents even more justification for BoC-Fed divergence and GoC outperformance."

Of commodities, West Texas Intermediate crude oil closed with a small loss despite a boost to the International Energy Agency's 2025 demand-growth forecast as the prospect for an end to Russia's war on Ukraine eased a geopolitical risk premium in place for the past three years. WTI oil for March delivery closed down $0.08 to settle at US$71.29 per barrel, while April Brent crude closed down $0.16 to US$75.02.

Gold traded at a record high late afternoon on Thursday as the dollar and treasury yields weakened even as the U.S. PPI measure rose above expectations, firming expectations the Federal Reserve will slow interest-rate cuts this year. Gold for April delivery was last seen up $29.1 to US$2,957.80 per ounce, topping Monday's prior record high of US$2,934.40.