If Tony's wage contract includes a cost-of-living adjustment to account for inflation, and inflation is predicted to be 5%, then Tony's nominal wage will go up by 5%.
A cost-of-living adjustment (COLA) is designed to compensate for inflation and the rising cost of goods and services, so that an employee's real purchasing power remains the same. If inflation is 5%, then Tony's nominal wage needs to increase by 5% in order to maintain his real purchasing power.
In summary:
Tony's wage contract includes a cost-of-living adjustment (COLA)
Inflation is predicted to be 5%
Therefore, Tony's nominal wage will go up by 5% to compensate for the 5% inflation rate and maintain his real purchasing power.