UPDATED -- Consumer prices increased as the slowest pace in five months during July, gaining just 0.1% from the month before, according to the U.S. Commerce Department.

This broadest measure of inflation, the Consumer Price Index, follows hikes of 0.3% in June and 0.4% in May, putting the annual inflation rate at 2%.

When the volatile food and energy sectors are removed the CPI increased still increased just 0.1% for July.

The all items index posted its smallest seasonally adjusted increase since February while the indexes for shelter and food rose, but were partially offset by declines in the energy index and the index for airline fares.

The food index rose 0.4% in July with the food at home index also rising 0.4 % after being unchanged in June. The decrease in the energy index was its first since March and featured declines in the indexes of all the major energy components.

Meantime, a separate gauge on the health of the American economy shows new housing starts in July hit its highest level in eight months.

It climbed 15.7% from the month before to an annual rate of 1.09 million while June’s level was revised upward. The July level is up 21.7% higher from the same time a year earlier.

Single-family home starts gained 8.3% in July from June, hitting its highest rate this year.

“A return to production levels over one million confirms that consumer confidence continues to improve,” said Kevin Kelly, chairman of the National Association of Home Builders. “Propelled by a healthier economy, more and more people are feeling ready to buy a home.”

The number of new building permits issued, a barometer of future homebuilding activity, also increased, picking up 8.1% in July from June, hitting an annual rate of 1.05 million, and is 7.7% higher than the rate from the same time a year ago.

New home starts rebounded in the Northeast, increasing 44% in July, hitting its highest level in 2008, while it gained 29% in the South following a huge June decline. Construction in the West was up 18.6% but it fell sharply in the Midwest 24.8%.

“July’s increase in starts combined with rising builder sentiment proves that June’s production dip was more of an anomaly than a reversal of the market,” said NAHB Chief Economist David Crowe. “We should continue to see a gradual, consistent recovery throughout the rest of the year.”

The current rates of home building compares to the height of the housing boom in 2005, when just over 2 million homes were built, however, after the bubble burst housing starts fell to 554,000 in 2009, during the worst of the recession.

Update adds comments from NAHB.