Data surfacing on Wednesday indicates that consumer prices posted a rare decline in August, while the housing industry saw construction fall to the slowest pace in 12 years.

The new economic reports seemingly validated the move by the U.S Federal Reserve yesterday to cut interest rates by a bold half a point to 4.75 percent, the first cut in nearly four years.

The labor department reported that consumer prices dropped by a tenth of a percent last month. Food prices, which account for about a fifth of the CPI, rose 0.4 percent after a 0.3 percent increase in July.

Home builders produced 1.331 million homes at an annual rate the commerce department said on Wednesday. Construction of new homes fell by 2.6 percent, marking the slowest pace since June 1995, and put contraction activity nearly 20 percent below the figures one year ago.

The decline in housing construction in August reflected big drops in the Northeast, where building activity fell by 37.7 percent, and West, where it was down 18.4 percent.

Construction rose by 11.4 percent in the South and 4.2 percent in the Midwest.

Building permits, a guide to future construction, dropped 5.9 percent to a 1.307 million pace, the lowest since 1995.

Starts were projected to fall to a 1.35 million pace, from an originally reported 1.381 million in July, according to the median forecast of economists surveyed by Bloomberg News. Permits were forecast to drop to 1.348 million. July permits were revised up to a 1.389 million pace from a previously reported 1.373 million.

The Fed said that some inflation risks remain, but by making the half-point cut in its federal funds rate, it believes the threat of a recession outweighed concerns about inflation.

Readings on core inflation have improved modestly this year,'' the U.S central bank said in yesterday's statement, while noting that officials will monitor price developments carefully.

Inflation