Australia's inflation rate has fallen so low that the Treasurer is worried and the Reserve Bank is rethinking the economic outlook.

Australia's quarterly rate came in at just 0.4 per cent in the March quarter. In the six months to March after the one-off jolt to prices from the introduction of the carbon tax, prices climbed just 0.6 per cent. Annualised, the six-month inflation rate is 1.2 per cent.

Wayne Swan. Credit:Trevor Collens

The only substantial price increases in the March quarter were the usual jump in recorded pharmaceutical prices after each December's expiry of the Medicare Safety Net and the January rise in school fees. Even those increases were well below the year before, pushing the Bureau of Statistics' calculation of Australia's seasonally adjusted inflation rate down to 0.1 per cent.

''The high dollar is weighing on prices,'' said Treasurer Wayne Swan. ''And the flipside … is that this is putting immense pressure on the profitability of many businesses.'' He said Australia was probably in the grip of deflation.