Inflation forecasts had risen after a surprise jump in last year's fourth-quarter consumer price index, but the latest first-quarter figures from the Australian Bureau of Statistics came in below expectations and gave the Reserve Bank some wriggle room on its cash rate outlook.

''While the Reserve Bank is unlikely to revert back to an easing bias again, the first-quarter consumer price index likely cements the RBA [as being] on hold for several months, and supports our view of stable rates in 2014,'' UBS senior economist George Tharenou said.

This gives some space for the RBA on cash rates. Any signs that inflation is rising at a faster pace would stoke the prospect of an early cash rate rise.

This in turn would threaten to send the dollar higher, potentially crimping exports.

But Wednesday's figures ultimately saw the dollar fall by more than half a cent from about US93.77¢ before the data was released. It slipped further on soft preliminary Chinese manufacturing activity data from HSBC and Markit, and was fetching US92.84¢ in late trade.

The headline inflation rate for the first quarter of this year rose by 0.6 per cent to take the annual rate to 2.9 per cent, below forecasts of 3.2 per cent. The year-on-year rate is still at the top end of the RBA's target band of 2 per cent to 3 per cent.

The trimmed mean for the quarter rose by 0.5 per cent to take the annual rate to 2.6 per cent. The weighted mean increased by 0.6 per cent for an annual growth rate of 2.7 per cent. The measures, which make up underlying inflation, are more closely watched by the RBA.

The strongest price rises for the first three months of the year were for cigarettes, petrol, secondary and tertiary education and pharmaceutical products. Prices for furniture, vehicle maintenance and domestic and international travel fell.

JPMorgan economist Tom Kennedy said the fall in the quarterly rate for tradeables inflation, also known as imported inflation, to 0.4 per cent in the first quarter from 0.7 per cent in the fourth quarter could be seen as a sign that the impact of the lower dollar was weakening. This was despite the annual rate of imported inflation increasing to 2.6 per cent.

''The pass-through from the decline in the currency is starting to wane a little bit and is becoming a little bit less intense,'' Mr Kennedy said. ''And I think that's something that at the margin would provide some comfort to the RBA as it explains to them … that the inflation pressure might not be as severe as they had thought.''

The easing in non-tradeables inflation, also called domestic inflation, would be welcomed by the RBA, analysts said, as it would help to keep the CPI contained and allow the central bank to leave monetary policy at an accommodative setting as the economy transitions away from mining-led growth.

Financial markets priced in a 56 per cent chance of a 25-basis-point rate rise over the next year, down from a 92 per cent chance before the figures were released, Credit Suisse data showed. The first-quarter numbers could see the Reserve Bank revise its underlying inflation forecast for the second quarter to below 3 per cent, economists said.

Barclays chief economist for Australia Kieran Davies cautioned that despite the softer data, inflation was no longer at benign levels, and was likely average around the upper end of the RBA's target band over the next few years. At the same time, signs of improvement in the labour market meant the unemployment rate could peak this year, instead of at the start of 2015 as the RBA has tipped, putting upward pressure on subdued wages growth, and in turn, domestic inflation.