Inflation fears are beginning to trump recession worries. That was the finding of Merrill Lynch's latest monthly global fund manager survey, which shows the number of managers expecting recession this year actually declined.

In an interesting turn around, the number of managers expecting a recession fell to 29 percent from 40 percent in April's survey. But about 25 percent of the managers now see global core inflation rising in the next 12 months, compared to just 7 percent in April.

This is not surprising after the hand-wringing we've been seeing about inflation, particularly related to rising energy costs.

Stocks would have been seared today if CPI was running hotter than expected. Instead, the 0.2 percent increase was a bit lighter than expected and for now, the market bounds higher. But it wasn't the energy side that was overheating. It was food. - up 0.9 percent.

Food inflation is now running at its highest rate in 18 years. We've been watching those big run ups in grains, milk, and cheese, and it's pretty clear that rising fuel costs will continue to push those food prices higher as farmers, truckers and food companies find ways to pay the steep increase in diesel and other energy costs.

We should see more of that impact in the coming months. Deutsche Bank Chief U.S. economist Joseph LaVorgna warned us yesterday though the April CPI was not the one to be worried about. It's May and June, where we might see some real pickup in energy prices. (Check out Wednesday's Market Insider Look Ahead where LaVorgna is interviewed on energy and inflation.)

Not a Fish Tale
Sometimes it really is the picture that tells the story, and I was lucky enough to tag along with CNBC's Trish Regan when she shot a story on how food inflation is affecting restaurants. We went to the Lobster House in Cape May, NJ, one of the biggest independent restaurants in the country, and spoke to owner Keith Laudeman. (tough duty but someone had to do it)

Laudeman told us he's not raising prices yet, but that he probably will. Like many business owners, he's waiting to see where things go before passing on the increases. We also talked to the commercial fishermen on the dock at Laudeman's restaurant. They were feeling the pinch of rising diesel fuel, which has doubled since last summer. They were not though seeing the benefit of higher prices for their catches just yet.

Diesel fuel is paid out of the pocket of scallop fishermen so some crews are finding their pay checks cut back by as much as 25 percent. Some boats were using fewer crew members and running fewer trips.

These fishermen are paying the price and, in fact, showing us the other side of the inflation story. Economists have repeatedly told us that if wages do not rise along with the run up in food and energy, there's a good chance we won't see a big jump in inflation.

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