Paulson: Oil surge is a 'burden'

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NEW YORK (CNNMoney.com) -- Treasury Secretary Henry Paulson said Monday the increasing price of oil is "a real burden on American consumers," blaming increasing demand - and not market speculation - for the price jump.

"We have not seen production capacity for oil grow appreciably over the last ten years and demand has increased significantly," Paulson told CNN's "Issue #1." "We need to really increase the investment in production capacity of oil and alternative fuel sources."

"I don't believe financial investors are responsible to any significant degree for this price movement," he added. Paulson noted that the prices of other commodities like iron ore and steel, where financial investors do not participate in the market, have increased at the same time that oil prices have increased.

Paulson said inflation is largely under control, except for food and energy prices.

"Unlike some other parts of the world, we have a situation in our country where core inflation seems to be largely under control," said Paulson. "The huge impact on working Americans are energy prices and food."

The Treasury Secretary, who said the American people are "going through a tough period," is optimistic that the stimulus checks that the government is in the process of sending out "will make a positive impact."

He does believe, however, that Congress will need to step in to help support the struggling housing market. "We need legislation from the Congress that will provide better oversight of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), which are providing 80% of the mortgages in this country," he said.

Paulson's comments came on the heels of a slew of bad news for the economy. On Friday, the government announced that the unemployment rate jumped to 5.5% in May from 5% in April, the biggest jump in more than two decades.

Gas prices climbed to a record $4.023 a gallon on Monday, which is nearly 29% higher than the average a year ago, according to the AAA figures. Oil prices shot up nearly $11 a barrel on Friday and settled at a record $138.54, marking the largest single-day increase in oil prices on record.

In reaction to the jump in unemployment and soaring oil and gas prices, the Dow Jones industrial average lost nearly 395 points on Friday. Wall Street battled back on Monday, however, with the Dow and the broader Standard & Poor's index were both up at midsession.