This is only an opinion, but I don't see how you could have gained any fat, and think the readings must have been inaccurate.

HOW could you have more body fat and less muscle if
-you're smaller
-you're stronger
-you feel good
-you weigh the same?

You could weigh the same, adding as much fat as you've lost muscle but then you'd be much thicker and quite a but weaker.
It's not logical.
I think if all of your progress is positive ie: smaller, stronger, feel good etc. then try not to worry about lost muscle because it's not happening. It also seems that the inches lost have been fat inches. However, if you feel tired and your performance stalling or decreasing you should start to worry and seek to remedy the cause.

Take care,
Meg