Prices of services excluding housing and energy services experienced their smallest increase in three months.
Lower immigration and a surge in deaths during the pandemic have also been contributing factors, the Fed chairman said.
Difference between CPI and personal consumption expenditures is the largest in decades.
Investors now expect the Fed to opt for a half-point rate hike at the December meeting, bringing the target range for the benchmark to 4.25% to 4.5%.
Economists surveyed by Bloomberg still see a US recession as more likely than not in the next 12 months.
A pickup in so-called core inflation in August has become a cause for concern among Fed officials.
“Monetary policy will need to be restrictive for some time," Fed Vice Chair Lael Brainard said.
Their remarks maintain Chair Jerome Powell's message last week that they will not flinch from confronting inflation.
Chicago Fed President Charles Evans said the Fed still might be able to avoid a recession.
Markets are bracing for rates to be raised to levels not seen since before the 2008 financial crisis.
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