Understanding Mexico's economic landscape via data transformations

Key Takeaways

• The latest update on the SHF House Price Index reveals that house price inflation reached 8.92% YoY as of October 1, 2025, reflecting a continuing trend of rising prices over the past three quarters.
• The Dynamic Factor Model (DFM) nowcast indicates a contrasting picture, with a current estimate of 7.72% YoY as of February 1, 2026, trailing the observed inflation by 1.20 percentage points.

The latest update on the SHF House Price Index reveals that house price inflation reached 8.92% YoY as of October 1, 2025, reflecting a continuing trend of rising prices over the past three quarters. This inflation rate stands above the historical average, which has ranged from 2.0% to 11.7%, positioning it in the 80th percentile since 2006. Notably, house price inflation exceeds both headline CPI at 4.02% and housing CPI at 3.44%, highlighting a significant premium of 4.90 percentage points over the former and 5.49 percentage points over the latter. This divergence suggests a robust demand in the housing market that may not be fully captured by broader inflation metrics, although the recent DFM nowcast hints at potential downward pressure.

The Dynamic Factor Model (DFM) nowcast indicates a contrasting picture, with a current estimate of 7.72% YoY as of February 1, 2026, trailing the observed inflation by 1.20 percentage points. This divergence implies that auxiliary indicators, particularly mortgage lending trends and housing CPI components, are exerting downward pressure on the underlying trend. The model suggests that while house prices have been rising, there may be emerging signs of mean reversion, prompting a cautious stance on future price increases. Policymakers and market participants should consider this nuanced interplay when assessing the housing market's outlook.

The SHF House Price Index is published quarterly by Sociedad Hipotecaria Federal, Mexico's federal mortgage development bank, typically around 40 days after the reference quarter ends. It is constructed from mortgage appraisal data (avalúos) using a Case-Shiller repeat-sales methodology, with breakdowns by state, new vs. used housing, and market segment (affordable vs. mid-to-high-end). Because the index reflects prices at the point of mortgage origination, it captures credit-driven demand rather than asking prices, making it a tighter gauge of actual transaction values and collateral quality across the housing market.

A Dynamic Factor Model (DFM) filters the quarterly SHF House Price Index using five Banxico auxiliary series — the funding rate, mortgage lending volumes, a housing purchase survey indicator, the SPF unemployment forecast, and construction activity — plus two CPI components (headline and housing subcategory). The model extracts a common factor from these seven indicators, producing a smoothed nowcast that updates between quarterly SHF releases whenever auxiliary data arrive. This filtered estimate helps distinguish persistent trends from quarterly noise in the observed house price series.

Out-of-sample backtest over 12 evaluation windows using the Dynamic Factor Model (DFM). Out-of-sample backtest over 12 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. House Price Nowcast (RMSE 1.32 vs 0.66 naive, n=12).

Key Takeaways

• Brent oil prices updated through February 2026 indicate a modest rebound but remain under pressure.
• Copper prices continue to soar, reflecting strong industrial demand amidst global recovery.
• Corn prices are stabilizing after recent fluctuations, highlighting ongoing challenges in the agricultural sector.

Brent oil prices updated through February 2026 indicate a modest rebound but remain under pressure. Brent oil prices, now at $69.41 as of February 2026, are down 7.7% year-over-year. Despite a recent uptick of 7.5% month-on-month, the overall momentum suggests a cautious market. This is particularly relevant for Mexico, where oil is a crucial revenue driver for Pemex and federal finances.

Copper prices continue to soar, reflecting strong industrial demand amidst global recovery. Currently priced at $12,951.34 as of February 2026, copper has skyrocketed 38.8% year-over-year. Although recent momentum shows a slight decline of 0.3% month-on-month, the overall trend remains robust. This surge is significant for Mexico's mining sector, especially in Sonora, which dominates national production.

Corn prices are stabilizing after recent fluctuations, highlighting ongoing challenges in the agricultural sector. Corn is priced at $210.64 as of February 2026, reflecting a 4.8% decline year-over-year. The price has increased by 3.3% month-on-month, indicating a possible recovery. For Mexico, where corn is a staple and a key aspect of food security, these shifts directly impact smallholder farmers and tortilla prices.

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 March 2026 IMSS release shows unit labor costs at 2.27%, reflecting a rising trend as wages outpace productivity.
• Real wages in the formal sector are showing positive growth, signaling an improvement in purchasing power for households.
• Across sectors, manufacturing and retail diverge sharply in real wage growth, with retail outperforming manufacturing significantly.

The March 2026 IMSS release shows unit labor costs at 2.27%, reflecting a rising trend as wages outpace productivity. Following March's formal sector wage data, ULC in manufacturing is rising, indicating that wage growth is exceeding productivity gains. At 2.27%, this figure resides in the 62nd percentile, having decreased by 0.49 from the previous month. This persistent upward pressure on unit labor costs suggests potential cost-push inflationary risks that could affect overall competitiveness in the manufacturing sector.

Real wages in the formal sector are showing positive growth, signaling an improvement in purchasing power for households. Manufacturing real wages stand at 2.27%, reflecting a modest decline of 2.87 compared to the previous month, while still indicating that purchasing power is on the rise. This positive trajectory, although slightly diminished, suggests that households are experiencing a net gain in their financial wellbeing, which could bolster consumer spending in the near term.

Across sectors, manufacturing and retail diverge sharply in real wage growth, with retail outperforming manufacturing significantly. Retail real wages have reached 4.09%, in stark contrast to manufacturing's 2.27%, highlighting the greater financial resilience of households employed in the retail sector. This disparity underscores the sector-specific dynamics at play, where the retail environment is currently providing more robust wage support than manufacturing, which continues to face headwinds.

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.

Twelve-month-ahead forecasts for unit labor costs and real wages in manufacturing and retail are produced using a Seasonal Autoregressive Integrated Moving Average with eXogenous inputs (SARIMAX) model. The model is estimated on seasonally adjusted month-over-month percentage changes, with all four series — ULC manufacturing, ULC retail, real wage manufacturing, and real wage retail — entering as joint endogenous variables. No external auxiliary data feed the forecast; the model relies solely on the internal dynamics and cross-series interactions of the wage and productivity data. Forecast confidence intervals widen over the projection horizon.

Out-of-sample backtest over 24 evaluation windows using the SARIMAX. Out-of-sample backtest over 24 evaluation windows using the SARIMAX. RMSE measures the typical forecast error in the same units as the series; 'naive' is a no-change benchmark. ULC Manufacturing (RMSE 2.97 vs 3.21 naive, +7% improvement, n=24); ULC Retail (RMSE 5.33 vs 5.22 naive, n=23); Real Wage Manufacturing (RMSE 2.20 vs 2.62 naive, +16% improvement, n=24); Real Wage Retail (RMSE 3.05 vs 2.97 naive, n=23).

Key Takeaways

• The latest ENOE survey for March 2026 reveals a noteworthy adjustment in the unemployment rate, which now stands at 3.85%, a decrease from the previously reported 3.98%.
• By gender, the unemployment rates reveal a slight divergence, with male unemployment at 3.51% and female unemployment at 3.62%.
• The share of informal workers remains elevated at 55.9%, signaling a continuing trend in labor market informality.

The latest ENOE survey for March 2026 reveals a noteworthy adjustment in the unemployment rate, which now stands at 3.85%, a decrease from the previously reported 3.98%. Following new employment data, the unemployment rate has shown a modest decline, now recorded at 3.85%, down from 3.98% in the previous month. This figure remains significantly low, around the 2nd percentile of historical observations, reinforcing the notion of a constrained labor market. The reduction of 0.131% from the prior period indicates a potential easing of joblessness, though the broader context of economic uncertainty looms large.

By gender, the unemployment rates reveal a slight divergence, with male unemployment at 3.51% and female unemployment at 3.62%. Male and female unemployment rates reflect a subtle but significant divergence, with males at 3.51% and females at 3.62%. Both figures have risen slightly compared to the previous month, underscoring a modest uptick in joblessness across genders. The relatively close rates indicate that while overall labor market conditions may be stabilizing, women are still facing challenges that could warrant further attention from policymakers.

The share of informal workers remains elevated at 55.9%, signaling a continuing trend in labor market informality. Informal employment, now at 55.9%, has seen a notable increase of 0.353% compared to the prior month. This elevated share suggests a troubling trend where more workers are falling into informal arrangements, which typically lack the security and benefits associated with formal employment. The rise in informality raises concerns about the overall health of the labor market and points to structural challenges that could impede sustainable economic progress.

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 17 evaluation windows using the Dynamic Factor Model (DFM). Out-of-sample backtest over 17 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 0.51 vs 0.13 naive, n=14); Underemployment (RMSE 1.26 vs 0.50 naive, n=11); Male Unemployment (RMSE 0.44 vs 0.26 naive, n=11); Female Unemployment (RMSE 0.44 vs 0.28 naive, n=11).

Key Takeaways

• INEGI's Q1 2026 productivity release shows secondary sector output at 100, reflecting a slight decline in productivity amidst ongoing economic uncertainty.
• Manufacturing composites show a concerning divergence between productivity and sales metrics.
• Within manufacturing, the top-performing subsector is food, which continues to show strong productivity levels.

INEGI's Q1 2026 productivity release shows secondary sector output at 100, reflecting a slight decline in productivity amidst ongoing economic uncertainty. The latest INEGI productivity data for Q1 2026, released in March, indicates that secondary sector output stands at 100, which is down 1.11 from the previous month. This decline is predominantly driven by the mining and energy subsectors, both of which face significant headwinds, suggesting that growth is not broad-based and remains concentrated in a few industries. The construction sector, however, continues to exhibit resilience, supporting overall productivity levels amid a challenging environment.

Manufacturing composites show a concerning divergence between productivity and sales metrics. Across the PCA indices, recent trends reveal a decline in productivity alongside a modest increase in sales, indicating potential sustainability concerns for future growth. While inventory levels have decreased, labor demand remains weak, reflecting a cautious stance among manufacturers. This disconnect raises questions about the underlying health of the sector and whether current sales levels can support ongoing productivity improvements.

Within manufacturing, the top-performing subsector is food, which continues to show strong productivity levels. The top-performing subsectors include food and petroleum products, with food maintaining a solid grip at 111. In contrast, the transport equipment sector lags significantly, registering at only 88.4, which highlights a critical vulnerability within manufacturing. Given that food accounts for nearly 20% of the manufacturing composition, its strength is crucial for supporting overall sector performance.

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.

Four composite indices — productivity, sales, inventory, and labor demand — are constructed using Principal Component Analysis (PCA) applied to INEGI manufacturing subsector data and GDP sector composition. PCA extracts the dominant co-movement pattern across subsectors, producing standardized indices that summarize broad trends while filtering out subsector-specific noise. The productivity index draws on output-per-worker measures across manufacturing branches; the sales, inventory, and labor demand indices use INEGI's corresponding survey-based indicators supplemented by GDP sector weights.

Key Takeaways

• The March 2026 SPF survey reveals a modest increase in the Aggregate Concern Index, signaling heightened economic unease.
• Economists have identified public insecurity and trade policy as significant growth constraints, underscoring systemic vulnerabilities.
• The perceived probability of recession remains elevated, reflecting a cautious outlook among economists.
• FX expectations suggest a consistent undervaluation of the peso, aligning with forecasters' beliefs about its strength.

The March 2026 SPF survey reveals a modest increase in the Aggregate Concern Index, signaling heightened economic unease. The March 2026 SPF survey shows the aggregate Concern Index at 2.82, placing it in the 64th percentile historically. This marks a stable month-over-month change, reflecting a nuanced sentiment among forecasters. The index's slight rise of 0.0032 indicates a growing awareness of underlying economic challenges, despite overall stability in the immediate outlook.

Economists have identified public insecurity and trade policy as significant growth constraints, underscoring systemic vulnerabilities. The key constraints currently cited include public insecurity at 9.7%, U.S. trade policy at 6.6%, and a lack of structural change at 5.0%. Notably, public insecurity has experienced the largest month-over-month decline, suggesting that while the issue remains pressing, there may be a slight easing in sentiment. This dynamic highlights the ongoing interplay between socio-political factors and economic performance.

The perceived probability of recession remains elevated, reflecting a cautious outlook among economists. The perceived probability of recession stands at 35.0%, placing it in the 89th percentile compared to historical norms. This elevated assessment relative to past data indicates significant concern regarding economic stability. Looking ahead, the probability for the next quarter is projected at 22.0%, suggesting a moderate outlook but still indicative of underlying risks.

FX expectations suggest a consistent undervaluation of the peso, aligning with forecasters' beliefs about its strength. According to forecasters, the current month's misalignment indicates that the peso is perceived as undervalued by 0.069. This sentiment has persisted across near-term horizons, reflecting a broader expectation of a stronger peso than previously anticipated. Such perceptions may influence investment decisions and currency strategies in the coming months.

Banxico's Survey of Professional Forecasters (Encuesta sobre las Expectativas de los Especialistas en Economía del Sector Privado) polls roughly 40 groups of analysts from banks, financial institutions, consultancies, and research centers. Responses are collected during the second half of each reference month — typically between the 15th and 28th — and results are published on the first business day of the following month. Because respondents form their expectations before some end-of-month official data releases, the survey provides an early window into shifting professional sentiment on inflation, growth constraints, recession risk, and exchange rates, making it a valuable leading indicator for policymakers and market participants.

Key Takeaways

• Banxico's April 2026 credit release shows money market spreads at a narrowing 0.212, reflecting a modest deceleration in rate premia.
• Household mortgage rates reflect significant pressures on affordability, with an average total annual cost (CAT) of 13.9%.
• Debt issuance patterns show a preference for fixed-rate financing, with fixed rates comprising 18.74% of total corporate debt.

Banxico's April 2026 credit release shows money market spreads at a narrowing 0.212, reflecting a modest deceleration in rate premia. Following the latest April lending data, rate premia reveal a slight tightening trend in funding costs, with bank funding remaining stable at 0.01. The TIIE spreads, particularly for the 28-day and 91-day rates, stand at 0.30 and 0.34, respectively. This narrowing of spreads, particularly over the past two months, suggests a cautious optimism in the money markets as they adjust to the prevailing economic conditions.

Household mortgage rates reflect significant pressures on affordability, with an average total annual cost (CAT) of 13.9%. The total annual cost of mortgages remains elevated, with rates ranging from a minimum of 10.7% to a maximum of 28.2%. This persistently high CAT indicates a limited pass-through of recent policy rate adjustments, which may hinder affordability for potential homebuyers and dampen demand in the housing sector.

Debt issuance patterns show a preference for fixed-rate financing, with fixed rates comprising 18.74% of total corporate debt. Corporate financing has increasingly favored fixed-rate instruments, while variable-rate issuance has also maintained a notable presence at 19.92%. This trend reveals firms' desire for stability in a potentially volatile interest rate environment, reflecting a strategic shift in how they are financing themselves amid prevailing economic uncertainties.

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.