This nation's leaders and its central bank seemingly have pulled all stops to stimulate the economy and put it back on track after the Great Recession.

The degree of their actions is unprecedented. Many fear that their actions to flood liquidity into the economy are sure to diminish the dollar's buying power, otherwise known as inflation.

Many economists, including Fed Chief Ben Bernanke, believe that inflation is only a real threat when the economy is hot and wages are rising.

However, speak to anyone who buys food for their family and drives a gas-powered vehicle; they will likely tell you that inflation is alive and well.

So what's going on? Are our nation's policymakers too high in their ivory towers to recognize the pinch everyone else feels at the gas pump and the grocery register?

There is considerable confusion among the general public regarding how inflation is measured. Some may be surprised that while there is a scientific approach to compiling inflation data, some of the process is an art form, with considerable subjectivity involved.

The primary way the U.S. government's Bureau of Labor Statistics measures inflation is by calculating the Consumer Price Index. This index measures the monthly change in price of about 80,000 items, representing a sample of goods and services purchased by the U.S. dollar.

When the Fed measures inflation, it tends to give more credence to CPI without energy and food prices factored in the number, referred to as "core" CPI.

The use of the core CPI to gauge inflation mystifies many, since these two components make up a large part of people's budget.

However, the Fed, which controls the nation's supply of money, is primarily concerned with pockets of inflation that can be controlled by manipulating the money supply. Monetary policy will not correct inflationary issues that arise when weather events create a spike in food prices or when the Saudis decide to tighten the oil spigot.

Fed's target core CPI is 2.0 percent to 2.5 percent. In April the core CPI rose only 1.3 percent on an annualized basis. So from the Fed's point of view, inflation is not a threat.

Another component that is very much a part of our lives, yet is kept out of overall CPI, is housing costs. In 1983, the bureau removed housing prices from the CPI because owner-occupied housing combines both consumption and investment elements, and the CPI is designed to exclude investment.

So rather than home prices, the bureau measures shelter costs by attempting to measure how much it would cost someone to rent a house equivalent to their own. This is known as owner's equivalent rent.

When you combine OER with actual rent paid by tenants to a landlord, the "shelter" category comprises 40 percent of the core CPI.

Critics of the bureau often theorize that the OER method was adopted to artificially lower the measured rate of inflation.

In actuality, the contrary is true. According to the National Association of Realtors, between 1983 and 2007 certain metrics used to gauge housing prices rose by 79 percent, but OER increased 140 percent in that time. While the U.S. economy is arguably being slowed by a depressed housing market, the absence of owner-occupied homes from the CPI could indicate that inflation actually is lower than what is being reported.

So is the U.S. economy currently undergoing inflation or not?

The answer is yes. Certain areas of the economy are rising in price, while other areas are falling.

As of last March, the items that saw the most increase in price were fuel (34 percent), butter (31 percent), lettuce (27 percent), lamb (20 percent) airfare (14 percent) and beef (14 percent). With the exception of airfare, these items are considered staples - things we need every day.

Deflationary items were television sets (-15 percent), computer software (-11 percent), photographic equipment (-10 percent), other fresh fruits (-8 percent) and computers and peripherals (-8 percent). These items, even fruit, are things that are nice to have, but not a necessity.

The web site is an excellent resource to anyone interested to see how their personal spending patterns have been affected by inflation, or in some cases, deflation. The site allows you to choose the items you regularly purchase from the body of bureau items and create a personal inflation rate.

Individuals who receive Social Security and pensions with cost of living adjustments may be pleased to know that their income growth is tied to overall CPI, not core CPI. This means that when the cost of food and fuel rises, their incomes also should rise, all other things being equal.

As an investor, personal inflation rates are less important than the core index because that's the one the Fed likes to look at and the Fed's actions affect interest rates. When interest rates change, money starts to move, which influences the value of investments.

Travis Flenniken, a chartered financial analyst, is vice president of investments at DeMoss Capital. If you have personal finance questions, you may send them to Business Editor Dave Flessner at dflessner@times or mail them to Dave Flessner, Times Free Press, 400 E. 11th St., Chattanooga, TN 37402.