THE rate of inflation has fallen to its lowest level in more than two years in the 12 months to March, data out today shows.

The Australian Bureau of Statistics said the consumer price index rose by just 0.1 per cent in the March quarter.

This resulted in the annual inflation rate tumbling to 1.6 per cent in the year to end of March, below the RBA's two to three per cent target band, and down from 3.1 per cent at the end of the December quarter.

Underlying measures of inflation, the central bank's preferred measures of price pressures, were also relatively benign.

These measures rose by an average 0.3 per cent in the March quarter and 2.15 per cent annually.

The Australian dollar fell half of one US cent after the release of the weaker-than-expected inflation data at 11.30am.

At 11.29am, the dollar was at 103.19 US cents.

By 11.32am, it had fallen to 102.69 US cents.