Two key inflation reports this week, PPI and CPI, to determine whether U.S. interest rates are raised

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 prior two months after a brief lull in the U.S.-Iran conflict resulted in cheaper oil.

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

The jump in wholesale prices last month will not ease worries at the Fed, but the report always takes a back seat to the more comprehensive consumer-price index due Friday morning.

While the CPI is also expected to show an oil-induced spike, the Fed wants to know if higher energy prices are spilling into other goods and services.

Key details

The increase in wholesale prices in the past 12 months rose to 5.4% from 4.8% and moved back close to a three-year high.

Wholesale prices - what businesses pay for supplies - tend to influence consumer prices.

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 since they're a better predictor of future inflation.

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

The cost of wholesale goods rose 0.4% last month when excluding food and energy - another potential warning sign. Prices of goods have been pushed higher by White House tariffs over the past year.

Prices for partly finished goods and raw materials also rose sharply, even after removing energy from the equation. These costs in the earlier stage of production suggest persistent inflationary pressures.

The wholesale cost of services, however, rose a scant 0.1%. Service prices have a bigger effect on U.S. inflation than the cost of goods.

Big picture: Producer prices help fill in the blanks on where inflation is headed - and the latest news wasn't great. Inflation is too high regardless of whether energy prices are taken into account.

Investors want a closer look at the details of the consumer-price index on Friday before deciding where to place their final bets on the Fed raising interest rates.

Looking ahead: "Energy prices are clearly a problem, but core PPI running hot tells you we have a broad inflation problem," said Sonu Varghese, chief macrostrategist at Carson Group.

Market reaction: The Dow Jones Industrial Average DJIA and S&P 500 SPX were set to decline in Thursday trades. The PPI report nudged the chances of a Fed rate hike next week up to 64% from 62%.

-Jeffry Bartash