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 have surged to $99.41 as of March 2026, reflecting a 38.6% increase year-on-year.
• Copper prices reached $12,528.71 in March 2026, demonstrating a robust 28.7% increase from the previous year but facing recent downward pressure.
• Corn prices are now at $213.30 as of March 2026, reflecting a modest annual increase of 2.7%, and maintaining a stable trend.

Brent oil prices have surged to $99.41 as of March 2026, reflecting a 38.6% increase year-on-year. With Brent oil data updated to March 2026, prices now sit at $99.41, showing a notable 38.6% rise compared to last year. The momentum is clearly upward, with a monthly increase of 43.2%. This surge in oil prices is particularly relevant for Mexico, where oil is a significant export, impacting federal revenue and regional economies.

Copper prices reached $12,528.71 in March 2026, demonstrating a robust 28.7% increase from the previous year but facing recent downward pressure. Copper, as of March 2026, stands at $12,528.71, up 28.7% year-on-year. However, it’s on a downward trend recently, with a monthly decline of 3.3%. This fluctuation is crucial for Mexico's mining sector, which is heavily reliant on copper production.

Corn prices are now at $213.30 as of March 2026, reflecting a modest annual increase of 2.7%, and maintaining a stable trend. Corn prices updated to March 2026 are at $213.30, showing a small year-on-year increase of 2.7%. The trend appears stable, with only a slight monthly rise of 1.3%. Given that Mexico is a net importer of corn, these price dynamics directly influence food prices and the costs of staples like tortillas.

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 February 2026 IMSS release shows unit labor costs at 3.66%, indicating a rise in manufacturing wages outpacing productivity growth.
• Real wages in the formal sector are showing a positive trend, signaling improved purchasing power for workers.
• Across sectors, the divergence in real wage growth is stark, with manufacturing clearly outperforming retail.

The February 2026 IMSS release shows unit labor costs at 3.66%, indicating a rise in manufacturing wages outpacing productivity growth. Following February's formal sector wage data, ULC in manufacturing is climbing, highlighting the pressure of rising wages on production efficiency. This 3.66% figure is around the 80th percentile, suggesting significant upward momentum in labor costs. The implications are clear: employers may face tighter margins, potentially passing costs onto consumers, which could fuel inflationary trends.

Real wages in the formal sector are showing a positive trend, signaling improved purchasing power for workers. Manufacturing real wages grew by 4.48%, reflecting a robust increase that boosts household income and spending capacity. In contrast, retail real wages are still positive but lag behind at 3.25%, with a recent decline that points to potential purchasing power erosion in that sector. This divergence suggests that while some workers are enjoying better financial conditions, others are facing stagnation, which could affect overall consumer sentiment.

Across sectors, the divergence in real wage growth is stark, with manufacturing clearly outperforming retail. Manufacturing is thriving with a strong 4.48% growth in real wages, while retail struggles at only 3.25%, following a recent dip. This gap signals that while manufacturers are capitalizing on labor gains, retail workers are not sharing in the same level of economic uplift. As inflation concerns loom, this discrepancy might lead to uneven consumer spending patterns, impacting overall economic stability.

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 notable revisions in unemployment rates, underscoring subtle shifts in the labor market landscape.
• By gender, the dynamics of unemployment present a more complex picture.
• Informal employment, however, continues to show resilience in the face of these shifting dynamics.

The latest ENOE survey for March 2026 reveals notable revisions in unemployment rates, underscoring subtle shifts in the labor market landscape. The March 2026 ENOE survey shows unemployment at 3.85%, reflecting a downward revision from prior estimates and positioning the rate around the 8th percentile historically. This marks a decrease of 0.131% from the previous month, continuing a trend of declining unemployment over recent months. The recent data suggests a modest deceleration in the labor market recovery, which may have implications for future monetary policy considerations.

By gender, the dynamics of unemployment present a more complex picture. Male and female unemployment rates stand at 3.51% and 3.62%, respectively, with both genders experiencing increases over the past month—0.162% for males and 0.0803% for females. While both rates are elevated within historical contexts, the marginal rise in male unemployment signals potential sectoral disparities that merit further inspection.

Informal employment, however, continues to show resilience in the face of these shifting dynamics. The share of informal workers climbed to 55.9%, indicating an increase of 0.353% from the previous month. This persistent rise in informality suggests that a significant portion of the workforce remains outside formal employment structures, raising concerns about job quality and long-term economic stability.

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 18 evaluation windows using the Dynamic Factor Model (DFM). Out-of-sample backtest over 18 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 0.54 vs 0.13 naive, n=15); 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 101, reflecting a modest rise but still indicating underlying volatility.
• Manufacturing composites show a concerning divergence in trends, signaling potential sustainability issues.
• Within manufacturing, the top-performing subsectors are petroleum and coal products, while the computer and electronic equipment sector is struggling.

INEGI's Q1 2026 productivity release shows secondary sector output at 101, reflecting a modest rise but still indicating underlying volatility. The latest INEGI productivity data for Q1 2026, released in April, reveals secondary sector output at 101, a 0.398% increase from the previous month. This growth is driven primarily by the construction sector, which remains robust, while mining and energy continue to lag behind. Notably, the rise in productivity isn't broad-based; it’s concentrated in construction, underscoring the sector's critical role in the overall performance of the secondary sector.

Manufacturing composites show a concerning divergence in trends, signaling potential sustainability issues. Across the PCA indices, productivity has dipped slightly, falling by -0.223%, while sales have shown resilience with a modest increase of 0.028%. However, labor demand remains weak, reflected in a decline of -0.171%, raising flags about the sustainability of current growth patterns. This divergence suggests that while sales may hold up, the underlying labor demand could signal trouble ahead if not addressed.

Within manufacturing, the top-performing subsectors are petroleum and coal products, while the computer and electronic equipment sector is struggling. The top-performing subsectors are petroleum and coal products, which surged by 4.28%, showcasing their significant weight in the aggregate. Conversely, computer and electronic equipment has been a laggard, with a notable decline of -17.8% over the past few months. This stark contrast highlights the dependency on a few key subsectors for overall manufacturing performance, raising concerns about resilience amid broader economic uncertainties.

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 notably tight 0.187% against the policy rate, reflecting a four-month downward trend.
• Household mortgage rates are climbing, with the total annual cost (CAT) averaging 13.9%, reflecting a significant affordability challenge.
• Debt issuance patterns show a growing preference for fixed-rate financing, as firms adapt to market conditions.

Banxico's April 2026 credit release shows money market spreads at a notably tight 0.187% against the policy rate, reflecting a four-month downward trend. Following the latest April lending data, rate premia have narrowed, indicating a tightening trend in the market. The latest spread, down 0.0487% month-over-month, underscores a cautious environment as market participants navigate the dual pressures of inflation and geopolitical uncertainties. This tightening could signal a more favorable borrowing climate for businesses, but it also raises questions about the sustainability of this trend amid ongoing economic vulnerabilities.

Household mortgage rates are climbing, with the total annual cost (CAT) averaging 13.9%, reflecting a significant affordability challenge. The total annual cost of mortgages remains elevated, with rates ranging from 10.7% to 28.2%. As the policy rate stabilizes, the pass-through impact on household borrowing costs is becoming increasingly pronounced, squeezing potential buyers and raising concerns about housing market stability. This spike in costs could dampen consumer confidence and spending, posing risks for broader economic growth.

Debt issuance patterns show a growing preference for fixed-rate financing, as firms adapt to market conditions. Corporate financing is leaning towards fixed-rate debt, which constitutes 18.74% of total issuance, reflecting a strategic pivot amid fluctuating interest rates. This shift suggests firms are looking to lock in costs to mitigate future rate hikes, while variable rates remain a smaller share. Such a trend highlights a cautious approach to financing in an uncertain economic landscape, emphasizing the need for firms to manage their exposure effectively.

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.