This is only true if a 7% increase in wages causes at least a 7% increase in inflation, which it doesn't. The effect you're describing doesn't shoot up forever, but approaches a limit.
Higher YoY inflation announced -> Companies raise prices on everything -> employees demand an inflation raise -> Higher YoY inflation announced -> ...
Yes. This is exactly the cycle that approaches a limit (all else being equal). Inflation-adjusting wages doesn't make inflation keep going up indefinitely.