There was a double play in economic reports this morning, and the news was not good. CPI and Initial Jobless Claims both came in higher than expected. Equity futures turned negative across the board after the news was released.

CPI was expected to come in at 0.4% but came in at 0.8% for July. This was still less than the 1.1% number for June. The problem is that Core CPI was 0.3%, ahead of the 0.2% that was expected. This was the same as the 0.3% reported for June and indicates that inflation is not limited only to oil and is working its way into the system.

There was no relief on the employment front either. Initial jobless claims for the week came in at 450,000, which were ahead of expectations. This was down slightly from the prior week but still indicates an extremely weak employment situation.

The focus now shifts to oil, which has recently experienced a substantial decline from its recent peak price. If oil prices continue to decrease, or at least stabilize at this lower price, it takes pressure of the Federal Reserve to raise interest rates. The Fed realizes that the U.S. economy is far too fragile to raise rates. As long as oil prices remain tame, the Fed can minimize the recent CPI numbers and claim inflationary pressures are easing.

However, if oil rallies again, the Fed is in a very uncomfortable position. In addition, a rise in oil prices would not only increase inflationary pressures but also weaken an already battered consumer. For these reasons, the focus is now on oil!

Doug Roberts is the Founder and Chief Investment Strategist for ChannelCapitalResearch.com, and is the author of Follow the Fed® to Investment Success: The Effortless Strategy for Beating Wall Street. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.