Surprisingly high inflation in December has been unwound by falling prices for clothing and travel in 2014.
The TD Securities Melbourne Institute monthly Inflation Gauge increased by 0.1 per cent in January, following a rise of 0.7 per cent in December and 0.2 per cent in November.
In the 12 months to January, inflation was up 2.5 per cent compared with 2.7 per cent in December.
January saw price rises for education, urban transport fares and utilities. But these were offset by falls in clothing, footwear, holiday travel and accommodation, newspapers, books and stationery.
Price pressures eased in January, despite being a seasonally strong period, TD Securities head of Asia-Pacific research Annette Beacher said.
"After the shock jump in prices over the December quarter, the first taste of January is certainly a benign one as usually January is a seasonally strong one for our Inflation Gauge, rising on average by 0.4 per cent over the last seven years," Ms Beacher said.
"If we exclude the seasonal jump in education fees, utility prices and transport fares, price pressures appeared to start 2014 on a particularly soft note - somewhat of a relief after the shock price increases featured in our December report."
Ms Beacher said the Ai Group expected the Reserve Bank of Australia to move to a neutral bias when it meets for the first time this year on Tuesday.
"We expect the members to note that underlying inflation in the final months of 2013 was much higher than expected, and add in a weak employment report, recent emerging market volatility and the US Federal Reserve tapering schedule, there is much to discuss," she said.