The decrease followed a 0.1 percent advance in July, the Labor Department said today in Washington. Core prices, which exclude food and energy, climbed 0.2 percent as forecast and were up 2.1 percent from a year earlier.
Slowing growth and weaker consumer spending, driven by the deepest housing recession in 16 years, are keeping companies from increasing prices. Today's figures may ease concern at the Federal Reserve, which yesterday cut its key rate for the first time in four years, that inflation remains a risk to the economy.
``Core inflation has now been falling for nearly a year,'' said Ian Shepherdson, chief economist at High Frequency Economics LLC in Valhalla, New York, who correctly forecast the core number. ``The Fed's ease yesterday was not a gamble.''
A separate government report showed builders in the U.S. began work on the fewest homes in 12 years in August, raising the risk the real-estate depression will spread to other parts of the economy.
Yields on two-year notes, which slid yesterday after the Fed lowered its benchmark by half a point to 4.75 percent, were little changed after the reports. Notes due in 2009 yielded 3.98 percent at 8:50 a.m. in New York.
Housing Starts Fall
The 2.6 percent decrease to a lower-than-forecast annual rate of 1.331 million followed July's 1.367 million pace, the Commerce Department said. Building permits dropped 5.9 percent to a 1.307 million pace, also the lowest since 1995.
After the reports, the benchmark 10-year U.S. Treasury note yielded 4.51 percent, up 3 basis points from yesterday.
Economists had forecast no change in consumer prices, according to the median of 79 projections in a Bloomberg News survey. Estimates ranged from a decline of 0.3 percent to a 0.3 percent gain. The median estimate for core inflation was for a 0.2 percent increase.
Consumers paid 2 percent more for goods and services in August compared with the same time last year, less than the 12- month increase of 2.4 percent reported in July.
Today's report showed energy prices fell 3.2 percent, the biggest decline since October, after dropping 1 percent in July. Gasoline prices fell 4.9 percent.
Food Prices Rise
Food prices, which account for about a fifth of the CPI, rose 0.4 percent after a 0.3 percent increase in July.
Housing costs, which include some energy costs and account for two-fifths of the total consumer price index, were unchanged after rising 0.2 percent. Owner's equivalent rent, which makes up 30 percent of the core CPI, increased 0.2 percent for a third straight month.
Medical-care costs rose 0.5 percent after increasing 0.6 percent. Clothing prices fell 0.5 percent following a 0.4 percent gain. Auto prices rose 0.1 percent.
The housing slump and higher gasoline prices since the start of the year have slowed consumer spending, which accounts for more than 70 percent of the economy.
Almost 60 percent of the CPI covers prices that consumers pay for services ranging from airline fares to movie tickets and laundry charges.
The Fed's preferred inflation gauge, a core measure tied to consumer spending compiled by the Commerce Department, was up 1.9 percent in July from a year earlier.
Some Fed policy makers, including Ben S. Bernanke before he became chairman, have said they would prefer that rate to be in a 1 percent to 2 percent range.