Area grocery prices dropped slightly last month because of increased competition among local supermarkets and a sharp drop in the costs of fruits and vegetables, the federal government said yesterday.

Food store prices here dropped by 0.4 percent in October, after rising by 2.1 percent in September, according to information compiled by the Department of Labor.

In particular, fruit and vegetable prices declined by 4.4 percent. Apple and orange prices led those price cuts, the government said.

The opening of a number of cost-cutting grocery outlets has stimulated price competition here, a key factor in the lowering of prices, grocery spokesmen said yesterday.

"Prices are as good as they're going to get," said a chain store representative, pointing to cuts in the price of flour and sugar. "All the big stores have started paying attention to each other."

But most grocery experts said food prices are cyclical, largely affected by the success of fruit and vegetable harvests and the costs of transporting food.

Food prices rose by 0.3 percent nationwide for the period compared with the slight decrease in costs here. Grocery prices had declined by 0.5 percent here in August, although consumer grocery costs have risen by 12 percent in the last year.

But while fruit and vegetable prices here dropped for the month, the prices of most food categories rose for the same period.

Dairy product prices here rose by 2.1 percent compared with an increase of 0.9 percent nationwide. Cereal and bakery prices rose by 0.4 percent, while prices for meats, poultry and fish jumped by 0.3 percent.

But the government also said that prices decreased here for cola drinks, poultry, fish and seafood, and eggs.

Meanwhile, the Labor Department also found significant price increases for most fresh vegetables. Prices for pork, beef, fresh milk, ice cream and cheese rose moderately, the government said.

A spokeman for Safeway Stores Inc. said the chain's prices here for sugar, flour, dry milk, onions, apples, coffee and bread had dropped, while prices for milk, lettuce and tomatoes had risen.

A Giant Food, official noted that vegetable prices are "steady to high," and that in particular beef prices are up. Giant Food's beef prices have risen by about 3 cents a pound in the last three weeks.

In addition, Giant's prices for ham and poultry are up slightly, as are the prices for most canned goods, particularly fruits packed in juice.

These spokesmen and a national representative of the industry indicated that the decline reported by the government shouldn't be read as part of a national trend, but as a general reflection of a catch-up in the harvesting of fruits and vegetables.

The continuing energy price increases and across-the-board inflation are expected to be reflected again in possibly larger cost increases when the government reports on November food prices.