Inflation continued to moderate in October as falling oil prices, a slack housing market and a decline in clothing costs reinforced the sense of a gradually slowing economy.

Department of Labor statistics released today indicated that overall prices declined 0.5 percent in October on a seasonally adjusted basis, following a similar decline in the previous month.

Excluding volatile energy and food costs, prices rose a slight 0.1 percent -- the smallest increase since December and a sign that so-called core inflation was declining.

Overall, prices rose at a 2.4 percent annual rate for the first 10 months of the year, the Labor Department reported, well below the 3.4 percent price increase recorded for all of 2005, when energy prices spiked.

Today's data should add to evidence that economic growth has slowed under the influence of recent Federal Reserve interest rate increases. The most recent report of gross domestic product indicated the economy was expanding at a sluggish 1.6 percent annual rate, down sharply from earlier in the year.

Federal Reserve policymakers agreed at their meeting last month that "inflation risks remained a dominant concern" and that more interest rate increases were possible if price pressures did not ebb, according to minutes of the session released on Wednesday.

The central bank has left its benchmark rate unchanged since June, after hiking it 17 times over two years to restrain inflation. Nearly all the policymakers at the October meeting thought price increases, excluding those for energy and fuel, were "uncomfortably high" and needed to come down, the minutes said.

Some analysts warned that it may be too soon to conclude the Fed's work is done, with unemployment at a low 4.4 percent, wages rising and consumers spending the extra cash they've gained from lower gasoline prices.

"There might be a little more work to do," said Drew Matus, senior economist at Lehman Bros. Inc., which predicts the Fed will raise its benchmark rate to 5.5 percent from 5.25 percent early next year. "We don't think the inflation problem has gone away."

The milder inflation report will allow the Fed more time to wait and watch how the slumping housing market affects the economy in coming months, he said. "This gives the Fed more breathing room, but it doesn't mean we're out of the woods" on inflation, Matus said.

But for now the news is positive, particularly last month's mild 0.1 percent increase in the core-CPI. The core index rose 2.7 percent in the 12 months that ended in October, after rising 2.9 percent in the year ended in September, the highest 12-month figure reported this year.

"One soft core is not a trend, but it still looks great," said Ian Shepherdson, chief U.S. economist for the High Frequency Economics consulting firm.

The news should help sustain a Wall Street rally fueled by hopes that inflation has peaked this year and is headed downward in coming months, as Fed policymakers have predicted. That strengthened many investors' assumption that the Fed will not have to raise interest rates higher to tamp down inflation pressures.

Energy prices figured large in the October price decline, as they did in September, falling 7.2 percent last month on top of a 7 percent decline the month before.

Gasoline prices, for example, fell 11.1 percent in October. The national average price today is $2.20 per gallon, down from more than $3 a gallon for much of the summer, according to the AAA automobile club. Oil is trading today around $59 a barrel, down from a peak above $77 a barrel in July.

The lower fuel costs rippled through other sectors, pushing down airline fares, which have fallen 5.5 percent in the past three months, and helping keep housing costs stable. Clothing costs fell 0.7 percent in October.

Health care, education and food prices all increased.

The inflation report was "encouraging news and it suggests the Fed is not going to alter its interest rate policy any time soon," said Richard Yamarone, director of economic research at Argus Research Corp. At the same time, he said, core inflation remains "in worrisome territory," which means "nobody should think the Fed is about to cut interest rates" either.

Yamarone also noted that some of the increase in food prices reflects higher prices for corn, which is widely used to feed livestock and to make corn syrup, a commonly used food ingredient. Corn is also a key ingredient in ethanol, and corn prices have surged this year as fluctuating oil prices boosted demand for ethanol-based fuels, he said.