Understanding Mexico's economic landscape via data transformations

Key Takeaways

• The latest SHF House Price Index for Q3 2025 reveals a YoY inflation rate of 8.86%, which is about as spicy as a taco on a hot summer day.
• Now, let’s unravel the mystery of the DFM nowcast, which brings some intriguing twists to our house price saga.
• Housing is a major household asset and a key store of wealth.

The latest SHF House Price Index for Q3 2025 reveals a YoY inflation rate of 8.86%, which is about as spicy as a taco on a hot summer day. This inflation rate, reported on July 1, 2025, is comfortably above the historical average, strutting in at the 79th percentile since 2006. In the same breath, house price inflation is outpacing both the headline CPI at 3.69% and the housing CPI at 3.35%, creating a premium of over 5 percentage points in each case. Meanwhile, the DFM nowcast suggests a slight divergence from this observed rate, but let's not throw a piñata just yet; we’ll dig into that shortly.

Now, let’s unravel the mystery of the DFM nowcast, which brings some intriguing twists to our house price saga. The DFM nowcast, standing at 7.29% as of January 1, 2026, is lower than the observed 8.86%, indicating that the model detects downward pressure from auxiliary indicators like mortgage lending and CPI housing. This suggests that while house prices have been on a rollercoaster of inflation, the underlying trend is showing signs of mean reversion or cooling off, which could have implications for those still clinging to the idea of a housing bonanza. In short, the DFM is waving a caution flag, reminding us that even the hottest markets can cool down faster than a soggy tortilla.

Housing is a major household asset and a key store of wealth. Rising prices can lift balance sheets and collateral values, while falling prices can weaken credit conditions and confidence. Housing costs also shape the cost of living and affordability, making house price inflation relevant for both growth and distributional pressures in Mexico.

Key Takeaways

• Brent oil prices through December 2025 reveal a disconcerting tale, settling at $61.81, a staggering 15.6% decline year-over-year.
• Copper, on the other hand, shines like a beacon, currently priced at $11,790.96 and boasting a robust 32.3% increase over the past year.
• Corn prices are on a modest ascent, currently at $205.32, with a year-over-year rise of 1.2%.
• Commodity prices feed directly into Mexico's inflation pulse and terms of trade.

Brent oil prices through December 2025 reveal a disconcerting tale, settling at $61.81, a staggering 15.6% decline year-over-year. Brent oil prices through December 2025 reveal a disconcerting tale, settling at $61.81, a staggering 15.6% decline year-over-year. This downward trajectory, exacerbated by global supply chain disruptions and fluctuating demand, has cast a pall over Mexico's federal revenues, which hinge significantly on oil exports. With a three-day streak of decline, the implications for Pemex and the Campeche regional economy are as clear as a foggy morning: uncertainty looms large.

Copper, on the other hand, shines like a beacon, currently priced at $11,790.96 and boasting a robust 32.3% increase over the past year. Copper, on the other hand, shines like a beacon, currently priced at $11,790.96 and boasting a robust 32.3% increase over the past year. This metal's recent upward momentum—evident in a 9.1% monthly increase—reflects a burgeoning demand from the tech sector and a resurgence in global infrastructure projects. For Mexico's mining sector, particularly in Sonora, this trend offers a silver lining amidst the otherwise turbulent commodity seas.

Corn prices are on a modest ascent, currently at $205.32, with a year-over-year rise of 1.2%. Corn prices are on a modest ascent, currently at $205.32, with a year-over-year rise of 1.2%. This gentle rise, marked by a 1.8% increase in the last month, paints a picture of stability in an otherwise volatile agricultural landscape. For Mexico's 1.5 million smallholder farmers, this incremental growth brings hope, but the specter of food price inflation still lurks in the shadows.

Commodity prices feed directly into Mexico's inflation pulse and terms of trade. Oil and corn affect energy and food costs, while copper is a proxy for global industrial demand. For policymakers, sharp commodity swings can shift inflation expectations and fiscal balances, making these prices critical to monitor.

Key Takeaways

• The January 2026 IMSS release shows unit labor costs at 3.12%, indicating wages are outpacing productivity.
• Real wages in the formal sector are showing signs of improvement, with manufacturing workers enjoying a robust increase in purchasing power.
• Across sectors, manufacturing is pulling ahead of retail when it comes to real wage dynamics.
• Unit labor costs (ULC) measure the average cost of labor per unit of output — when wages grow faster than productivity, ULC rises, potentially squeezing profit margins and fueling inflation.

The January 2026 IMSS release shows unit labor costs at 3.12%, indicating wages are outpacing productivity. Following January's formal sector wage data, ULC in manufacturing is rising, with a MoM decrease of 0.32 percentage points. This uptick signifies that wages are growing faster than productivity, which could stir the pot for cost-push inflation pressures down the line. At the 72nd percentile, this trend raises eyebrows about competitiveness and cost management in the sector.

Real wages in the formal sector are showing signs of improvement, with manufacturing workers enjoying a robust increase in purchasing power. With real wage growth at 5.61%, households in manufacturing are experiencing tangible benefits, as their purchasing power is on the rise. This positive shift, marked by a 1.54% MoM increase, suggests that workers are gaining ground against the rising costs of living, providing a much-needed cushion in uncertain economic times.

Across sectors, manufacturing is pulling ahead of retail when it comes to real wage dynamics. Manufacturing is outperforming retail, with real wages rising significantly while retail workers are facing a decline in purchasing power, currently at just 1.52%. This divergence highlights a troubling trend in the retail sector, where real wages have been stagnant, potentially leading to increased financial strain for households reliant on this sector.

Unit labor costs (ULC) measure the average cost of labor per unit of output — when wages grow faster than productivity, ULC rises, potentially squeezing profit margins and fueling inflation. In Mexico, where the formal sector employs roughly half the workforce, IMSS-registered wage data captures trends in the formal economy but misses the informal sector's dynamics. Real wages — nominal wages adjusted for inflation — determine household purchasing power and underpin consumer demand. For policymakers, these indicators help balance inflation control, competitiveness, and the economic welfare of Mexican workers.

Key Takeaways

• The latest ENOE survey shows unemployment at a historic low, yet underemployment takes a concerning turn.
• By gender, a nuanced picture emerges, revealing disparities that raise eyebrows.
• The share of informal workers is on the rise, presenting a dual-edged sword for the labor market.

The latest ENOE survey shows unemployment at a historic low, yet underemployment takes a concerning turn. The February 2026 ENOE survey shows unemployment at 3.44%, maintaining its position near the 1st percentile of historical data. This stability, however, belies a troubling rise in underemployment, which has recently advanced to 10.42%, reflecting a slight uptick from the previous reporting period. The underlying trend indicates that while unemployment remains low, the quality of jobs may be deteriorating, prompting concerns about the overall health of the labor market.

By gender, a nuanced picture emerges, revealing disparities that raise eyebrows. Male and female unemployment rates are currently reported at 3.35% and 3.54%, respectively. While both genders exhibit low unemployment levels, the marginal increase in female unemployment signals potential vulnerabilities in sectors typically dominated by women, suggesting a need for targeted policy interventions to address these disparities.

The share of informal workers is on the rise, presenting a dual-edged sword for the labor market. Informal employment has surged to 54.43%, indicating a troubling trend where more individuals are engaging in jobs without formal protections or benefits. This increase not only underscores the precariousness of many workers' situations but also highlights broader structural issues in the economy that could hinder sustainable growth and labor rights advancements.

Labor slack and its composition shape inflation pressure, policy timing, and social risk. Unemployment, underemployment, and unemployment by gender reveal how broad and uneven slack is. In Mexico's large informal sector, the informal employment share can swing sharply — often contracting faster in downturns as unprotected jobs are cut first, then rebounding early — masking true slack if headline unemployment alone is tracked. Tracking these dimensions helps distinguish cyclical slack from structural mismatches and calibrate monetary policy accordingly.

Between quarterly ENOE survey releases, a Dynamic Factor Model (DFM) nowcasts employment indicators using higher-frequency auxiliary data. The model ingests monthly series — industrial production, consumer confidence, capacity utilization, retail sales, and private consumption — alongside quarterly GDP components to extract common factors that track the business cycle. When any auxiliary series receives new data, the Kalman filter updates the nowcast, providing an early signal before the next official employment release.

Out-of-sample backtest over 15 evaluation windows using the Dynamic Factor Model (DFM). Out-of-sample backtest over 15 evaluation windows using the Dynamic Factor Model (DFM). RMSE measures the typical forecast error in the same units as the series; 'naive' is a no-change benchmark. Unemployment (RMSE 0.33 vs 0.11 naive, n=12); Underemployment (RMSE 1.25 vs 0.49 naive, n=10); Male Unemployment (RMSE 0.27 vs 0.25 naive, n=10); Female Unemployment (RMSE 0.27 vs 0.27 naive, +0% improvement, n=10).

Key Takeaways

• INEGI's Q4 2025 productivity release shows secondary sector output at 102, continuing its recent upward trend.
• Across the PCA indices, manufacturing composites show a concerning divergence in performance.
• Within manufacturing, the top-performing subsectors shine a spotlight on food production, while transport equipment remains in the dumps.
• Productivity trends reveal the economy's capacity to grow without stoking inflation.

INEGI's Q4 2025 productivity release shows secondary sector output at 102, continuing its recent upward trend. The latest INEGI productivity data for Q4 2025, released in December, indicates that the secondary sector productivity index is at 102, reflecting a 3-month upward streak. This growth is largely driven by construction, which has soared to an impressive 106, while mining continues to lag behind at a mere 89.8. Notably, this growth seems to be more concentrated in construction rather than being broad-based across all industries, hinting that while some sectors are thriving, others are still digging themselves out of a hole.

Across the PCA indices, manufacturing composites show a concerning divergence in performance. The composite indices reveal a mixed bag: while productivity is at a modest 0.281, sales have been robust, rising to 0.61, suggesting that demand is still alive and kicking. However, labor demand is on a downward trajectory at -1.49, raising eyebrows about the sustainability of this growth. This divergence between sales and labor demand could signal future challenges—because let’s face it, if the demand is there but the workforce isn’t, we might just be throwing a party with no one to serve the drinks.

Within manufacturing, the top-performing subsectors shine a spotlight on food production, while transport equipment remains in the dumps. The top-performing subsectors include food, which is cruising at 111, a solid indicator of consumer demand, while transport equipment languishes at a dismal 82, reflecting ongoing struggles in that area. Given that food accounts for 18.86% of total manufacturing, its strong performance is undoubtedly propping up the overall figures. Meanwhile, the stark contrast with transport equipment underscores the uneven recovery within the manufacturing landscape—it's like a feast where some are dining lavishly while others are still waiting for their plates.

Productivity trends reveal the economy's capacity to grow without stoking inflation. In Mexico, productivity in the secondary sector — mining, energy, construction, and especially manufacturing — signals how efficiently output expands relative to inputs. Strong productivity gains mean firms can meet demand without raising prices, easing inflation pressure and supporting sustainable wage growth. Weak productivity, by contrast, constrains supply, making cost shocks more inflationary. Manufacturing deserves closer scrutiny, as its diverse subsectors respond differently to global demand, exchange rate shifts, and investment cycles. Tracking these patterns helps judge whether growth is supported by efficiency gains or reliant on credit and labor cost increases.

Key Takeaways

• The January 2026 SPF survey shows the aggregate Concern Index at 2.83, reflecting a dip from last month.
• Economists have identified public insecurity as the leading constraint on growth, with a notable uptick in concerns over U.S.
• The perceived probability of recession stands at 25.0%, marking a moderate level of concern relative to historical norms.
• According to forecasters, the peso is viewed as overvalued, indicating a persistent misalignment in expectations.

The January 2026 SPF survey shows the aggregate Concern Index at 2.83, reflecting a dip from last month. The January 2026 SPF survey shows the aggregate Concern Index at 2.83, placing it around the 64th percentile. This index is falling, down by 0.06 from December. It's worth noting, though, that over the past year, concerns have crept up by 0.55, indicating a growing unease among economists despite this recent dip.

Economists have identified public insecurity as the leading constraint on growth, with a notable uptick in concerns over U.S. The key constraints currently cited include public insecurity at 10.1%, U.S. trade policy at 8.4%, and a lack of structural change at 4.2%. The single biggest mover this month is public insecurity, which saw a rise of 1.53 percentage points. This growing concern reflects broader anxieties about safety and stability, which could weigh heavily on economic confidence.

The perceived probability of recession stands at 25.0%, marking a moderate level of concern relative to historical norms. Recession concerns among surveyed economists are currently moderate, reflecting a 25.0% probability compared to the previous quarter. This signals a bit of unease, especially given the elevated standing relative to historical averages. Looking ahead, the probability eases to 15.0% for the next quarter, suggesting some confidence that the economy might stabilize in the near term.

According to forecasters, the peso is viewed as overvalued, indicating a persistent misalignment in expectations. FX expectations suggest the peso is overvalued, with a current-month misalignment of +0.205. This perception has been consistent across the forecast horizon, indicating a sustained belief that the peso is weaker than anticipated. Such misalignment might prompt policymakers to reconsider interventions to stabilize the currency.

Banxico's Survey of Professional Forecasters (Encuesta sobre las Expectativas de los Especialistas en Economía del Sector Privado) polls economists from major financial institutions, consultancies, and research centers. Published monthly, it captures expert views on growth constraints, inflation expectations, and recession risks before official data confirm trends. Because these respondents shape market narratives and influence investment decisions, the survey offers an early window into shifting professional sentiment — making it a valuable leading indicator for policymakers and market participants alike.

Key Takeaways

• Banxico's February 2026 credit release reveals a nuanced landscape in money market spreads, with funding and TIIE spreads exhibiting signs of tightening.
• Household mortgage rates continue to pose challenges for affordability, with the total annual cost (CAT) averaging 14.0%, marking a significant hurdle for potential borrowers.
• Debt issuance patterns reveal a shift in corporate financing strategies, as firms increasingly favor fixed-rate instruments in a volatile economic climate.

Banxico's February 2026 credit release reveals a nuanced landscape in money market spreads, with funding and TIIE spreads exhibiting signs of tightening. Following the latest February lending data, rate premia stand at 0.07% for ON TIIE funding and 0.30% for TIIE 28d, reflecting a narrowing spread trend of -0.0117% from the previous month. This shift suggests a more favorable funding environment as market participants adjust their expectations regarding future rate cuts from Banxico. However, the broader economic backdrop, characterized by ongoing inflation concerns and geopolitical uncertainties, may temper the overall impact on lending conditions.

Household mortgage rates continue to pose challenges for affordability, with the total annual cost (CAT) averaging 14.0%, marking a significant hurdle for potential borrowers. The total annual cost of mortgages ranges from 11.1% to 28.2%, indicating a substantial disparity that affects the affordability of housing finance. This elevated CAT reflects the lagging pass-through of policy rates to consumer borrowing costs, straining household budgets at a time when economic stability is under scrutiny. As inflation pressures persist, the implications for mortgage demand could be profound.

Debt issuance patterns reveal a shift in corporate financing strategies, as firms increasingly favor fixed-rate instruments in a volatile economic climate. Corporate financing shows a strong preference for fixed-rate debt, which comprises 18.31% of the total, compared to 9.89% for variable inflation-linked and 9.87% for other variable rates. This trend highlights a strategic pivot as companies seek to mitigate risks associated with fluctuating interest rates. As firms navigate an uncertain economic landscape, this move towards stability in financing could have lasting implications for investment and growth trajectories.

Rate premia show how market and bank funding costs move relative to the policy rate, indicating the efficiency of monetary transmission. Household mortgage rates capture the cost of long-term borrowing — their sharp rise in recent years signals affordability pressures and distributional effects, as many families face double-digit costs. Debt issuance patterns, normalized by GDP, reveal how firms finance themselves; the balance between fixed and variable rates matters for vulnerability to policy shifts. Together, these indicators show how policy rates filter into real borrowing conditions, affecting credit demand, investment, and ultimately growth and inflation dynamics.