Concern about inflation was a key factor in the recent global sell-off of equities, according to the latest monthly fund manager survey from Merrill Lynch. The fieldwork for the survey was completed before the market falls began on May 11.David Bowers, chief global investment strategist at Merrill Lynch, identifies three ways that the concern is manifested. The first is that economic growth will be below expectations in the coming period. “The latest concern is whether the growth surprises we have seen are sustainable going forward,” he says. A net 14% of managers expect global growth to get weaker in the next 12 months, compared with 5% in April and 4% in March. Fund managers are also voicing direct concerns about inflation. A net 64% say global core inflation is likely to be higher in 12 months’ time, compared with 47% in April. Concern over inflation leads to worry about interest rates. “If people really fear inflation they fear monetary policy is too slack,” says Bowers. This month a net 32% say global monetary policy is too stimulative, compared with 26% in April, although in March it was 34%. If central banks act on such fears by hiking interest rates further, it could also have a negative effect on economic growth. Bowers says a changing view of the global economy is behind the fears. “A year ago people thought the economy was growing below trend. Now they think it is above trend,” he says. In technical terms, the output gap has moved from negative to positive. Such a shift is consistent with rising inflation, especially when combined with additional shocks such as oil price rises. The survey also shows a strongly bearish attitude towards the dollar. A net 66% of managers expect it to depreciate on a trade-weighted basis over the next 12 months, compared with 53% in April and 41% in March. A total of 283 fund managers, with $919bn (490bn) under management, took part in the surveys.