The new number reflects upward revisions to business investment and government spending.
Americans expect prices will climb at an annual rate of 4.5% over the next year.
The drop spurred a fresh round of applications to purchase homes.
Total industrial production, which includes mining and utilities, fell 0.6%.
Consumers expect prices will climb at an annual rate of 3.2% over the next five to 10 years.
Despite high borrowing costs, business investment has held firm.
Fed officials have warned that strong data could lead them to keep tightening.
A closely watched measure of underlying inflation, meanwhile, cooled to the slowest pace since 2020.
Service providers continued to hire, although at a slower pace.
Recent inflation data underscore how a strong labor market is underpinning consumer demand.