"The all items index increased 8.3 percent for the 12 months ending August, a smaller figure than the 8.5-percent increase for the period ending July", the department said in a news release referring to the all-items reading in the Consumer Price Index, or CPI.
In June, the CPI hit a 40-year high by growing at an annualized 9.1%.
It slowed to a growth of 8.5% in July after tumble in fuel prices, which went from a record high of just over $5 for a gallon of gasoline at US pumps in mid-June to below $4 by last month.
For August, economists had expected an 8.1% growth for the year and a negative 0.1% for the month.
The higher-than-expected final figures, that included a 0.1% increase — not decrease — for August, surprised forecasters, who concurred that the Fed was crawling rather than rolling in its fight against inflation.
Economists also said they expected the Fed to approve a third straight interest rate hike of 75 basis points when the central bank meets on September 21.
"A high CPI print raised the odds of a higher-for-longer [rates] scenario at the Federal Reserve", economist Adam Button said in a comment posted on the Forex Live forum.
The Fed has raised rates by 225 basis points in four increases since March, with two back-to-back 75 basis point hikes in June and July, to curb runaway inflation.
The Fed’s target for inflation is a mere 2% a year and it has vowed to raise interest rates as much as necessary to achieve that.
Economists have cautioned that the Fed could end up pushing the United States into a deep recession with its sharpest rate hikes in four decades, saying the high-flying housing sector and one-time ebullient stock market could end up as the Fed’s victims.
Preliminary estimates show the US gross domestic product, or GDP, likely contracted by 0.6% in the second quarter after a 1.6% slowdown in the first quarter. Two straight quarters of GDP growth typically places an economy in a recession.