Fed to decide on interest-rate hike after two key inflation reports

Wholesale prices rose sharply in August because of higher gas prices, leaving inflation uncomfortably high.

Wholesale costs in the U.S. jumped again in August, flogged by higher gasoline prices, in the first of two inflation reports that will dictate if the Federal Reserve raises interest rates next week.

The producer price index increased 0.4% last month, the government said Thursday. Wholesale prices had been basically unchanged in the the prior two months after a brief lull in the U.S.-Iran conflict resulted in cheaper oil.

Yet energy prices flared back up again in August after the fighting resumed, putting upward pressure on inflation again.

The increase in wholesale prices in the past 12 months rose to 5.4% from 4.7% and moved back close to a three-year high.

Changes in wholesales prices - what businesses pay for supplies - tend to influence consumer prices over time.

A separate measure of wholesale prices that strips out energy, known as the core rate, also rose an unwelcome 0.3% in August. The Fed pays closer attention to core rates because they are a better predictor of future inflation trends.

The 12-month increase in core prices was unchanged at 4.7% in the prior month, sticking close to a three-year high.

Big picture: Wholesale prices always takes a big backseat to the more comprehensive consumer price index due Friday morning, but it helps Wall Street to fill in the blanks on where inflation is headed.

The CPI is also expected to show a surge in August due to higher oil prices. Yet investors want a closer look at the details of the report before deciding whether to place their bets on the Fed raising interest rates next week.

Market reaction: The Dow Jones Industrial Average DJIA and S&P 500 SPX were set to open flat in Thursday trades.

-Jeffry Bartash