At the same time, factory production fell 0.7%, a sign that US retailers remain reluctant to buy stock in the uncertain economic climate.
Retail sales also rose for the second month in a row in August, according to official data.
The increase was largely due to higher spending on fuel.
Higher petrol costs largely accounted for the fastest monthly rise in prices for three years, up 0.6% from July. But excluding fuel price increases, the overall monthly rise was only 0.1%.
Annual inflation rose to 1.7%, up from 1.4% in July, but still well below the Federal Reserve's 2% target.
Spending on motor vehicles and car parts rose sharply from a year earlier, up 10.7%.
Clothing sales and expenditure on home improvements were both 5.8% higher than in August 2011.
The data is slightly better than forecast, but some analysts fear the rise in spending could be tempered by higher inflation.
"There is a real risk that the rising cost of food and fuel may well put additional pressure on household spending power," said Chris Williamson, chief economist at Markit.
Furthermore, US firms remain reluctant to hire. Last month, they added 96,000 staff to US payrolls, just below the 100,000 needed to absorb the rise in the workforce.
Fears that the US economic recovery may be losing steam prompted the Federal Reserve to announce on Thursday that it would inject a further $40bn of money into the economy.
US industrial output fell 1.2% last month, its fastest decline for three years, after Hurricane Isaac shut down oil and gas rigs in the Gulf of Mexico.