There is presently a great deal of concern among many of us financial pundits about the threat of inflation in the U.S. economy.

Perhaps we should rest easy in Federal Reserve Chairman Ben Bernanke’s testimony before Congress in February when he assured us that “Inflation made here in the U.S. is very, very low.”

In fact he went on to report that Consumer Price Index (CPI) for the 12 months ending in December 2010 was only up by 1.2 percent. While reported inflation, as measured by the CPI, is fairly low, that does not necessarily imply that the prices you pay for the goods you buy have not and will not rise sharply.

Inflation is a general rise in the prices of the goods and services that we consumers purchase in our economy. When prices rise, each dollar will buy each of us fewer goods and services. On the other hand, deflation (negative inflation) is a general fall in the prices of the goods and services we purchase.

Deflation leads to each dollar being able to purchase more goods and services. While too much inflation or too much deflation can wreak havoc in the economy, Ben Bernanke might tell us to, move along, average American, nothing to see here. Or is there?

In our present economy we are experiencing what has come to be called biflation. Biflation exists when both inflation and deflation occur simultaneously in the economy.

During periods of biflation, we typically observe deflation in items purchased with credit such as homes, automobiles, furniture, and appliances while we simultaneously see inflation in commodity based items such as food, medical care, and gasoline.

Mr. Bernanke is fortunate that, when measuring inflation with the CPI, the deflationary effects from housing, automobiles and alike nicely offset the inflationary effects in commodities resulting in a “very, very low” inflation rate.

We, however, are unfortunate in that we experience a decline in the prices (deflation) of the things we already have (our homes and cars) while we simultaneously experience an increase in the prices (inflation) of the things we need to purchase on a regular basis (food, medical care, gasoline).

How large a problem is inflation in our present day economy? Well for starters, while the official reported CPI was 3.9 percent for the 12 months ending in September, some outside economists are not as optimistic. For example, Shadowstats.com estimates the “real” consumer inflation rate to be much closer to 12 percent.

We can also gain some insight by looking at the Producer Price Indexes (PPI). The PPI is a leading indicator of consumer inflation and measures the change in the prices of the inputs (raw materials) paid by domestic producers of goods and services. For the 12 months ending September 2011, the PPI’s change in intermediate goods index rose 10.5 percent while the PPI’s change in crude goods rose 20.9 percent. Still not concerned? Well, over the same 12 months, the price of hard red wheat rose 17 percent, the price of corn was up 26 percent, the price of propane rose 28 percent, and the price of pork was up 24 percent. If you’re still not convinced go down and buy a tank of gas for your car or a shopping cart full of groceries.

So what can we do about this mess? First, be prepared to spend more at the grocery store and at the gas pump. Spend some time now putting together a budget and figure out where the extra money you’ll need to buy those everyday items is coming from. Try to pay off as much debt as you can. The money you save in interest will help to balance your budget. You can also reallocate or rebalance any investments you have in preparation for the coming periods of higher inflation. Consider investing a portion of your portfolio in gold and other precious metals. Look into purchasing inflation protected bonds or inflation protected bond funds. Finally consider investing more heavily in commodity producers such as oil and agribusinesses.

James Nelson is on faculty with the Finance Department in the College of Business at East Carolina University.