NEW YORK (CNN/Money) - Inflation at the retail level inched higher last month, the government said Tuesday, in a rise that met expectations and did nothing to alter the trend of modest price increases for consumers.

The Consumer Price Index, the government's main inflation gauge, rose 0.3 percent in October, lifted by rising energy costs. October's gains follow a 0.2 percent rise in September.

Stripping out volatile food and energy costs, the core CPI rose 0.2 percent, the government said. Both figures met the consensus forecast of economists surveyed by Briefing.com.

While 1.8 percent rise in energy prices lifted the CPI, the numbers come amid a stretch of subdued inflation as businesses, facing slack demand for their products, are unable to raise prices.

"This number shows that inflation is in a benign mode for the U.S. economy," Lynn Reaser, economist at Bank of America, told CNNmoney Morning.

Contained prices have allowed the Federal Reserve to cut interest rates 12 times since 2001, taking the overnight intrabank lending rate to a new 40-year low earlier this month.

Separately, the trade deficit narrowed to $38.0 billion in September, the Commerce Department said Tuesday, from the record $38.3 billion in August, but was still the second-highest level on record.

Imports totaled $120.19 billion in September, down just 0.5 percent from the year-to-date high of $120.78 billion in August. Exports -- which rose more or less steadily in the first half of 2002 -- declined for the second consecutive month in September to $82.16 billion, down 0.4 percent from August.

The figures had little apparent effect on the markets. Bond prices remained modestly higher while stock index futures were down slightly.

Oil prices have been rising amid worries that a war with Iraq will cut supplies from the region. In the CPI report, the government said gasoline prices rose 3.8 percent last month after rising 1.0 percent in September. They were up 7.2 percent from the same period last year.

In the first 10 months of this year, consumer prices rose at an annual rate of 2.7 percent, compared with a 1.6 percent advance for all of last year. Much of the pickup so far this year comes from energy costs, which went up at a rate of 14.2 percent. That's a turnaround from 2001, when energy prices fell at a rate of 13 percent.

Prices for new automobiles were up 0.4 percent last month, but they were down 1.1 percent from the same period a year ago.

But in another sign of continued economic stress in the airline sector, passenger fares shrank 2.4 percent last month, the biggest monthly decline since shortly after the Sept. 11 attacks.

Tobacco prices dropped 3.1 percent. Food prices nudged up 0.1 percent in October, down from a 0.2 percent increase, with prices falling for vegetables, fruit and poultry.

But medical care costs continue to hit the pockets of consumers. Those costs went up 0.6 percent in October and are up 4.8 percent from a year ago.  

-- from staff and wire reports