The threat of inflation to the U.S. economy appears to be muted, with a report issued Wednesday showing consumer prices in August fell for the first time in 16 months.

The U.S. Labor Department reported the Consumer Price Index declined 0.2% from July, when it posted a 0.1% gain. The August numbers are up 1.7% compared to a year ago. This compares to a 12-month increase in July of 2%.

Excluding volatile food and energy prices, consumer prices were unchanged for August, the first time this has happened since August 2010. Over the past year these “core prices” are up 1.7%, compared to 1.9% in July.

Increased prices for food and shelter were offset by declines energy prices, especially gasoline.

The news was released ahead of an expected Wednesday afternoon announcement by the U.S. Federal Reserve about how quickly it will or won’t move when it comes to pushing near-zero interest rates higher.

Lindsey Piegza, chief economist at the investment firm Sterne Agee, called the August consumer price report “extremely benign," on the heels of a soft producer price report released the day before.

"The hawkish argument that the Fed need raise rates sooner than later to stay ahead of inflation has clearly lost at least some credibility, with headline inflation reversing course for the second consecutive month,” she said. “Although interestingly enough, led by a decline in energy costs, price reprieve at the pump will help maintain a floor in consumer spending which could in the longer run support the hawkish argument that the economy is on stronger footing. Still, for now, from the doves' point of view, the Fed can and needs to remain focused on the U.S. labor market.”

Meantime, a separate report shows builder confidence in the market for newly built, single-family homes rose for a fourth consecutive month in September, according to the National Association of Home Builders/Wells Fargo Housing Market Index.

This latest reading brings the index to its highest level since November of 2005.

“Since early summer, builders in many markets across the nation have been reporting that buyer interest and traffic have picked up, which is a positive sign that the housing market is moving in the right direction,” said NAHB Chairman Kevin Kelly.

Despite the upbeat report, which also shows builder confidence increased in every region of the country, the group did offer some words of caution.

“While a firming job market is helping to unleash pent-up demand for new homes and contributing to a gradual, upward trend in builder confidence, we are still not seeing much activity from first-time home buyers,” said NAHB Chief Economist David Crowe. “Other factors impeding the pace of the housing recovery include persistently tight credit conditions for consumers and rising costs for materials, lots and labor.”