NEW YORK (CNN/Money) - Energy costs drove wholesale prices higher in August, the government said Tuesday, but the report showed less inflationary pressure than many on Wall Street had expected.

The Producer Price Index, which measures prices at the wholesale level, rose 0.6 percent in August, compared to a 1 percent increase in July. Economists surveyed by Briefing.com had forecast a 0.7 percent boost in August.

The so-called "core PPI," which excludes often-volatile food and energy costs, was unchanged in August, compared with a 0.4 percent gain in July. Economists had forecast the closely watched core number to be up only 0.1 percent.

The better-than-expected inflation reading could give hopes to those looking for the Federal Reserve to not raise rates when it meets Sept. 20, after 10 straight quarter-percentage point interest rate hikes.

Some economists have argued that with little inflationary pressure, the Fed should pause in its course of measured rate hikes to assess the impact of Hurricane Katrina on the economy. But oil and gasoline prices have hit record highs since the Aug. 29 storm, prices that were not measured in this report.

The Fed will also see the Sept. 15 Consumer Price Index report, the key measure of retail prices, before its meeting.

Bond prices rose, and the yield on the 10-year Treasury fell to 4.14 percent following the report.

Even before the post-Katrina energy spikes, the PPI report showed energy prices up 3.7 percent in the month. But food prices were off 0.6 percent. Passenger cars also were recorded as having a 1.3 percent decline in prices, as major U.S. auto manufacturers cut prices on 2005 models.

Economists debated whether the report made a pause by the Fed more likely.

"The report is certainly encouraging. It says there's no urgency to panic about inflation. But that's not the same as saying there's justification for a pause," said Anthony Chan, senior economist with JPMorgan Asset Management. "This is all pre-Katrina. There's enough pipeline pressures out there to say that a pause is not a slam dunk."

But University of Maryland professor Peter Morici argued that the report is further proof that the Fed shouldn't raise rates again on Sept. 20.

"Despite years of economic expansion, inflation outside the energy sector remains largely under control," he said. "The economy is already slowing and Katrina will slow growth further. If the Fed raises rates, it risks driving the economy into a recession."

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