WASHINGTON — Consumer prices posted a rare decline in August while the battered housing industry saw construction fall to the slowest pace in 12 years.

The new economic reports yesterday were seen as justification for the Federal Reserve's bolder-than-expected cut in interest rates to try to ward off a recession. Analysts said the waning inflation pressures gave the Fed the room to cut interest rates while the continued severe downturn in housing gave the central bank a reason to move.

The Labor Department reported that consumer prices dipped by 0.1 percent in August. It was the first decline since an 0.4 percent drop in October 2006 and reflected a big drop in gasoline and other energy prices.

Meanwhile, the Commerce Department reported that construction of new homes fell by 2.6 percent last month to a seasonally adjusted annual rate of 1.331 million units.

That was the slowest pace since June 1995 and put construction activity 19.1 percent below the level of a year ago.

The Fed on Tuesday cut its target for the federal funds rate, which governs the rates paid on millions of consumer and business loans, by a half-point to 4.75 percent, double the quarter-point reduction that had been expected.

The Fed in its statement said that "some inflation risks remain," but by making the bolder half-point cut in its federal funds rate, it was signaling that it clearly believed the threat of a recession outweighed concerns about inflation.

Analysts predicted housing construction would fall further in coming months, reflecting the recent turmoil in financial markets as investors lost their appetite for securities backed by mortgages because of rising mortgage delinquencies.

"There is a continuing major downslide," said David Seiders, chief economist for the National Association of Home Builders. "We know from our own surveys that August was a really rough month in the mortgage market and the housing market."

The organization's survey of builder sentiment fell to 20, tying a record low set in January 1991 during the last severe housing downturn.

Seiders said even with the Fed's cut in interest rates, he did not expect to see new-home sales stop falling until early next year, with construction starts not stabilizing until the middle of next year.

The problem, he said, was that the rising mortgage foreclosures are dumping more homes on an already-glutted market at a time when potential buyers are having difficulty getting mortgages because lenders are tightening standards.

Mortgage foreclosures are expected to rise even further as an estimated 2 million adjustable-rate mortgages with low teaser rates reset to much higher monthly payments over the next two years.