NEW YORK (CNNMoney.com) -- Prices paid by businesses rose in May due to higher energy costs, as the latest inflation reading was roughly in line with Wall Street expectations.
The Producer Price Index, the government's key measure of inflation at the wholesale level, was up 0.9 percent in May, compared to a 0.7 percent rise in April. Economists surveyed by Briefing.com had forecast a 0.6 percent increase.
Energy prices were up 4.1 percent, led by a 12.1 percent jump in wholesale gasoline prices. Retail gas prices hit record levels in the month.
The more closely watched core PPI, which strips out often volatile food and energy prices, was up 0.2 percent, in line with forecasts of economists, although it's up from the April report that showed no change in those prices.
The core PPI is now up 1.6 percent over the last 12 months. That's about the same year-over-year change as seen in April, and it's within the range of a 1 to 2 percent increase that is generally seen to be within the comfort zone of Federal Reserve policymakers.
Inflation readings are closely watched for clues as to what the Fed may do with interest rates. In recent weeks there's been a growing belief that the central bank will not go ahead with anticipated rate cuts as it keeps an eye on prices and inflation. That has led to a sharp drop in Treasury prices, lifting the yield of the benchmark 10-year note.
The yield on the 10-year note, which stood at 5.23 percent just before the report, initially didn't move after the reading, then briefly edged up to 5.25 percent before falling back to 5.22 percent. All the yield levels were up from the 5.20 percent level reached late Wednesday.
The PPI reading comes a day ahead of the Consumer Price Index report, which is a more closely followed measure of inflation at the retail level. Economists are looking for a 0.6 percent increase in CPI after a 0.4 percent rise in April, with core CPI up 0.2 percent, the same rise seen in the previous month. 
