People only need to drive by a gas station to know that prices are going up. Inflation is driving up prices across the United States economy, and not just on gas.

The economy has been a roller coaster through the pandemic, with shutdowns, hoarding, supply chain delays and labor shortages. COVID-19 is still here and so are the economic problems that came with it. Now, you can add inflation to that list.

Duke University economics professors Emma Rasiel and Connel Fullenkamp spoke to reporters recently about what these rising prices could mean this holiday season.

What causes inflation?

Economists tend to think inflation is driven by demand, Fullenkamp said.

“In this case what we’ve got is both supply and demand factors going on,” he said. From the demand side is the massive stimulus the federal government has pumped into the economy during the pandemic.

“At the same time, we have supply chain issues because all the goods and services can’t get produced, or they’re in the wrong place to get into consumers’ hands,” he said.

And then there’s the labor shortage.

“A lot of people have basically stopped working. In some cases, permanently. In some cases, they’re waiting on the sidelines for things to get better,” Fullenkamp said.

“So we have both supply and demand factors that both are moving in the direction that pushes prices up,” he said.

Can inflation be controlled?

Inflation is notoriously hard to control. But, both economists said, a new COVID-19 variant like omicron or another spike in cases could actually relieve some of the pressure on prices.

Potential lockdowns or slowing down of economic activity could slow inflation, Rasiel said.

“It’s going to give us a little bit of short-term relief from inflation. We’ve already seen markets reacting in a classic uncertainty mode,” Fullenkamp said. That means the prices of things like oil can go down because the markets think demand could go down.

But that could be bad news for the long term.

“It may also prolong and postpone the eventual recovery of the supply chain,” he said. “We were hoping that the supply chain issues that were feeding some of the inflation would get resolved quickly. But with the rise of omicron one of the things it could do is both suspend production in different parts of the world and continue to gum up the supply chain even worse.”

Interest rates could also go up, Rasiel said.

“If we do move into a more inflationary environment, higher interest rates unfortunately are absolutely inevitable,” she said.

“If interest rates do go up a lot, it makes it harder for the consumer to borrow for items like buying a house, buying a car,” Rasiel explained. But if interest rates rise slower than inflation, the value of people’s savings accounts could essentially decrease.

What does this mean for right now?

Inflation means uncertainty, Rasiel said. Rising prices mean it makes it harder for people to plan for the future.

“We saw a lot of hoarding and shortages last year when there were concerns about things like toilet paper and so on. So that was a pandemic-driven response. You may see something similar in an inflationary environment,” she said.

If people worry too much about rising prices, they could start stockpiling again, she said.

“Many people in the economy today have not lived through a period of inflation. The last time we had significant inflation was back in the 1970s,” Rasiel said. “So most people living and working today have always seen price levels stable with very small increases over time just as their salaries have gone up over time.”

“Dealing with a world in which prices are going up a lot and people don’t know how to think about it or plan for it will create even more uncertainty just in people’s day-to-day lives,” she said.

Will my pay go up?

“In real terms, the purchasing power of many families has actually gone down, despite the fact they’ve received fairly significant wage increases. We have wage increases at a pace of 3, 3.5% which is really unusual for the past decade,” Fullenkamp said. “A bout of high inflation that’s at 5% or 6% comes by and unravels that rather quickly.”

Fullenkamp said inflation would hit low-income families the hardest, with increases on energy bills, rent and groceries.

“Inflation is especially bad because it hurts the folks at the lowest end of the income distribution the most because they spend their money that are most vulnerable to inflation,” he said.

Rasiel said employees will push for higher salaries as prices increase. This year has already seen labor unions go on strike and wildcat strikes for better wages for bus drivers, factory workers and fast food employees.

“If prices are going up on day-to-day essentials, employees will push for higher salaries because their cost of rent and food and other essentials is going up so they need more money to pay for it,” Rasiel said. “Companies will try to push at least some of those wage hikes into higher prices for consumers. Again, this creates a vicious cycle.”

So what should I do?

The first thing to do, Rasiel said, is don’t panic.

“An inflationary environment tends to feed on itself if people make panicked, short-term decisions.”

Inflation can be a self-fulfilling prophecy, she said. If everyone thinks there will be inflation, then prices will go up, she said.

“When life becomes very uncertain, people tend to become much more short-term focused. How are we going to get through the next few weeks or months rather than thinking about the longer term?” she said.

Don’t make big changes to retirement accounts or investments, she said.

“Try to avoid the hoarding that we sometimes see of non-perishable essentials. If everybody goes out and buys in huge numbers, because they’re concerned about the prices going up, that will actually force prices to go up more,” she said.

“Inflation is self-fulfilling in many ways. If everybody believes there will be inflation, there will be,” Rasiel said.