Government reports this week are expected to show that builders in the U.S. began work on the fewest homes in 12 years in August and that inflation cooled, suggesting the Federal Reserve may need to cut interest rates more than once before the year is out.

Housing starts likely fell to an annual rate of 1.35 million, from 1.38 million in July, according to the median forecast of economists surveyed by Bloomberg News ahead of the Commerce Department’s report Wednesday.

The construction report may also show permits, an indicator of future building, dropped to a 1.345 million annual pace in August, a 12-year low.

Consistent with the bleaker outlook, a report Tuesday from the National Association of Home Builders/Wells Fargo may show an index of homebuilder sentiment slumped to 20 this month, matching a record low.

The last time the measure was that low was in January 1991, when the housing market and economy were both in recession. Figures below 50 mean most respondents view conditions as poor.

Two price reports will probably reinforce the view that inflation is less of a concern.

On Tuesday, Labor Department figures may show prices charged by wholesalers dropped in August as energy costs fell, taking the pressure off retailers to charge more. The producer price index slid 0.3 percent after rising 0.6 percent in July, economists forecast.

Consumer prices, due the next day from the Labor Department, were probably little changed, the first time since November without an increase. The gauge rose 0.1 percent in July.

Core prices, which exclude food and energy, gained 0.2 percent for the third month and were up 2.2 percent from a year earlier, the Bloomberg survey median shows.

Less inflation opens the door for the Fed to lower the benchmark rate at its Tuesday meeting and again in coming months to revive the economy.

“We’ve got weakness in housing, a slower economy overall and restraint in inflation,” said Michael Moran, chief economist at Daiwa Securities America Inc. in New York. “The Fed will cut by a quarter-point this week, and I’m looking for them to follow it up with three or four moves over the next several months.”

Bloomberg News

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