Dr. Tom McDonnell:

Yes. We can design a robust system that would prove able to achieve that. It does not have to be full quarters; it could be six or even 12 quarters. The more quarters that are used, the more evened out it will be and there will be less volatility. For example, we had a very unusual year in 2020 when wage movements were very volatile because of the skew of low-paid workers, primarily, who lost their jobs. Over a longer period, wages find an equilibrium that is related to inflation and productivity. Those two things are feeding into economic growth. Wages are, in a sense, anchored to long-term economic growth. Wage increases also tend to be higher than price increases. Aiming for wage indexation is robust. It will be fiscally sound, it does not imply an increase in public spending - or an increase or reduction in the level of taxes - compared to the size of the economy and it is distributionally neutral. It is absolutely affordable and does not necessarily crowd out any of the other options we have described today, depending on political preferences.

There is the issue of very high and dramatic increases in inflation at present. Looking a little further back, inflation in 2021 was only approximately 2.4%. It was negative, 0.9%, the year before that. We are not seeing sustained high levels of inflation yet. It is true that we are expecting a high number in 2022. The Central Bank reckons it might be 4.5%, but wage increases in previous years would cover that. Wage increases in 2022 are likely to be more than 4.5%, if the 4.5% increase in inflation comes to pass. While there may be a little lag in respect of months and quarters, and catching up with the cost of the energy crisis, we will catch up.

Hence my comment that an immediate response to the energy crisis could be done with some kind of temporary measure that would not be baked into the system because over the medium term the system would be robust and would be responding to all those things. Fundamentally, wages are anchored to economic growth, and inflation and wages tend to be anchored to each other with wages being slightly bigger year-on-year.