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Mario Monti, a former Italian Prime Minister has said that Europe’s economic recovery from the Covid-19 pandemic is “stagflation”. In an interview with CNBC, the ex-prime minister said that the “huge mass” of accommodative monetary policy by central banks and fiscal stimulus from governments “may well fire more inflation.” Monti who is now the president of Italy’s Bocconi University, said there were “a number of constraints on the flexibility of production” to increase. 

Stagflation is when the rate of inflation is high but economic growth has slowed and the unemployment remains elevated. The IHS Markit eurozone flash composite purchasing managers’ index, which looks at activity across manufacturing and services, hit a two-month low of 59.5 in August versus 60.2 in July. In other words, a reading that is higher than 50 is an expansion in economic activity. However, some economists believe that momentum might become slower in the region. 

Additionally, the supply chain issues that had hit Asia manufacturing in Europe can highly contribute to making stagflation worse. Also, the higher wages which will add up to the inflationary pressures. 

Speaking to CNBC’s Steve Sedgwick at the European House Ambrosetti Forum on Saturday, Monti said that economies, not only in the EU, could start to experience elements of “stagflation” similar to that seen in many countries in the 1970s.

Monti said, therefore, it will be “very important to manage wisely and in a coordinated manner this transition from a needed abundance of monetary and financial support to a more ordinary situation.”

Preliminary data released on Tuesday showed inflation in the euro zone hit a 10-year high in August, with consumer prices up 3% from a year ago.