Euro zone inflation soars to a record 10%, piling pressure on the European Central Bank

Christine Lagarde, European Central Bank (ECB) president addresses a news conference following the ECB's monetary policy meeting in Frankfurt, Germany, September 8, 2022. 

Eurostat data showed on Friday that the euro zone's inflation hit a new record high of 10% in September.

The reading showed price increases broadening out from volatile food and energy prices into nearly all segments of the economy.

Food, alcohol and tobacco prices were up from a month ago, while energy prices were up from a year ago.

Core inflation, which excludes food and energy, rose 4.8% on the year and economists expect the situation to get worse before it gets better.

The likelihood of a longer and deeper recession across the euro zone will be increased by Friday's print as it will exert more pressure on the European Central Bank to hike interest rates aggressively.

Seema Shah, chief global strategist at Principal Global Investors, said that headline inflation may be at its peak.

While headline inflation may start to ease as a result of base effects and volatile energy prices, with the unemployment rate itself at a new low, core inflation is likely to rise further in the coming months," she said in an email Friday.

Despite the impending recession and energy crisis, the euro zone's unemployment rate remained at 6.6% in August.

"With labor markets still tight and inflation gradually becoming more entrenched in the Euro area economy, today's numbers will only embolden the ECB to focus solely on inflation, giving them a green light to introduce another sizeable policy rate hike."

There is a difficult dilemma for the Euro area. Raising policy rates will only deepen the economic weakness in the region due to the fact that inflation is largely out of the reach of the European Central Bank.