Seventy percent of 88 institutional investors surveyed by Northern Trust expect inflation to increase over the next six months and 62% are bracing for a spike in market volatility.

These responses were at their highest points since Northern Trust began the survey in the third quarter of 2008.

In addition, 50% believe that oil prices will continue to rise, and 90% think higher oil prices will impede economic growth. As a result of their expectations for inflation to rise, 26% increased their exposure to commodities in the first quarter.

“Global events during the first quarter of 2011 have given our managers a lot to digest in a very short amount of time,” said Chris Vella, global director of research for Northern Trust Global Advisors. “With renewed unrest in the Middle East, it makes sense that managers have become increasingly concerned about the impact that a spike in oil prices will have on economic growth. Likewise, as general concerns around inflationary pressures persist, we would expect some of our managers to increase their exposure to commodities as a means to hedging out some of that risk.”

Nonetheless, 58% of the managers believe that stocks in the S&P 500 Index are undervalued. However, there was a decrease in the number of managers who believe that corporate earnings will increase over the next three months from 80% in the fourth quarter of 2010 to 69% in the first quarter of 2011.

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