The ECB would not have to raise interest rates if wage earners bore the full burden of the inflation shock in the euro zone

If wages did not react at all to the rise in inflation in the euro zone, i.e. if wage earners bore the full burden of the inflationary shock, and if, moreover, commodity prices stopped rising at their current high level, euro-zone inflation would spontaneously return to around 2% in 2024 and the ECB could avoid sharply raising its interest rates. If this equilibrium eventuated , and if governments wanted to prevent a fall in wage earners’ purchasing power, they would still have to implement huge transfers to households in 2023. But we see a different equilibrium emerging, where wage earners obtain wage increases for 2023 that partially offset their loss of purchasing power in 2022 and lead to inflation being markedly higher than 2% in 2023 and then 2024.