"Energy price gains, which will likely dominate the September inflation reports in the aftermath of Hurricanes Harvey and Irma, will likely be viewed as having a temporary impact on inflation by the Fed", said John Ryding, chief economist at RDQ Economics in NY.
The dollar index, which tracks the currency against a basket of six major rivals, was up 0.45 percent at 92.295, after rising to 92.336, its highest in a week.
The latest producer price index, which measures inflation pressures before they reach the consumer, rose 0.2 percent last month, the department said. Prices of goods and services both rose sequentially by 0.5 percent and 0.1 percent, respectively. The so-called core PPI increased 1.9 percent in the 12 months through August after a similar gain in July.
US stock futures pointed to a flat opening for the Dow Jones Industrial Average.
The Fed is closely monitoring inflation to determine whether to raise a key short-term interest rate. Economists had forecast the rate to remain unchanged at 4.4 percent.
The Fed is expected to delay raising rates until December.
UVA removes black shroud from Jefferson statue after protest
WVIR reports a sign on top of the covering said, "TJ is a racist and rapist". No police officers were observed at the statue on Tuesday night.
Prices for iron, steel and industrial chemicals all rose in August. According to Barclays, the headline inflation is likely to have risen by a soft 0.4 percent sequential print and 1.9 percent year-on-year, whereas the core inflation figure is expected to have risen firmly by 0.1 percent sequentially and 1.6 percent year-on-year. Much of the increase in August came from a 3.3 percent surge in energy costs.
Within energy, there were double-digit monthly increases in residual fuels, home heating oil, and jet fuel, which rose 18.6 percent, its fastest pace in eight years. Food expenses slipped in August, including a sharp 20.6 percent decline in wheat prices.
"This morning's producer price gains for August are a step in the right direction", said Scott Anderson, chief economist at the Bank of the West in San Francisco.
He noted that core PPI rose 0.5 percent in the immediate aftermath of Superstorm Sandy in 2012.
"The overall demand picture is quite strong and prices are beginning to respond to an increases in demand in the real economy", he said.
Air transportation services rose 1.4 percent, the biggest increase since July 2009, while truck hauling services moved up 0.9 percent, the largest increase in three years.