A survey of fund managers by Merrill Lynch & Co. (MER) found some amazing shifts in perception, including a stark shift in expectations for inflation over the next year. Concerns over stagflation -- a toxic mix of inflation and below-trend economic growth -- have abated somewhat, as fears over inflation have fallen well to the rear relative to a growing consensus of global economic contraction, the Financial Times reported Thursday morning. Eighteen percent of the survey's respondents now say they expect global core inflation to fall over the next 12 months, the FT reported; two months ago, 33 percent expected inflation to soar. Yet, while inflation expectations have become increasingly mixed, fears over a global recessional have crystallized. Almost one-quarter of the fund managers questioned by Merrill in August for its monthly survey said the global economy was already in recession, according to the FT story -- and almost half expect the world economy to contract during the next 12 months. A full 83 percent of those surveyed said that earnings estimates for the next year were too high, as a result. There is potential good news for the U.S., however, in the survey; fund managers said they expect to reallocate assets toward the States in coming months as economic malaise spreads to Asian and other countries. The line of thinking here is that the U.S. was the first to feel the reverberation of credit woes, and is therefore further along the correction curve than other nations, which are just now beginning their slide into recession. Disclosure: No positions in MER when story was published; indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.