Understanding Mexico's economic landscape via data transformations

Key Takeaways

• The recent update from the SHF House Price Index reveals significant insights into the state of the housing market, particularly with the new observation of 8.71% YoY inflation as of 2026-01-01.
• The DFM nowcast provides valuable context, estimating house price inflation at 8.65% YoY as of 2026-05-01.

The recent update from the SHF House Price Index reveals significant insights into the state of the housing market, particularly with the new observation of 8.71% YoY inflation as of 2026-01-01. This level of house price inflation exceeds historical averages, positioning itself in the 75th percentile since 2006. In comparison, headline CPI inflation stands at 3.94% while housing CPI inflation is at 3.61%, suggesting that house prices are rising notably faster than general inflation metrics. This divergence reflects the ongoing demand pressures in the housing sector, despite a slight decline of 0.21 percentage points from the previous quarter.

The DFM nowcast provides valuable context, estimating house price inflation at 8.65% YoY as of 2026-05-01. This nowcast aligns closely with the latest observed value, indicating that auxiliary indicators such as mortgage lending and housing CPI are confirming the current trajectory rather than suggesting any significant upward or downward pressure. The model's consistency with observed data suggests that the dynamics within the housing market remain robust and supportive of sustained inflationary trends.

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 reached a notable high, with significant implications for Mexico's fiscal landscape.
• Copper prices are also witnessing substantial growth, underscoring the metal's vital role in Mexico's mining sector.
• Corn prices reflect a contrasting trend, yet they remain critical for food security in Mexico.

Brent oil prices have reached a notable high, with significant implications for Mexico's fiscal landscape. Brent oil prices, updated to September 2026, now stand at $102.02, reflecting a robust year-on-year increase of 50.9%. This latest observation indicates a strong upward momentum, as prices have risen sharply in recent months. Given that oil constitutes approximately 15% of federal revenue, this surge is likely to enhance the fiscal outlook for the Mexican government, potentially bolstering public investment.

Copper prices are also witnessing substantial growth, underscoring the metal's vital role in Mexico's mining sector. As of September 2026, copper is priced at $14,473.06, up 44.8% year-on-year. The recent trend shows a slight increase, suggesting continued demand for this essential commodity. Given that copper mining contributes around 2.4% to Mexico's GDP, this price elevation may invigorate economic activity, particularly in Sonora, which dominates the national production landscape.

Corn prices reflect a contrasting trend, yet they remain critical for food security in Mexico. Currently, corn is priced at $236.92 as of September 2026, marking a year-on-year increase of 20.8%. The trajectory has been upward recently, indicating rising costs for this staple commodity. As a net importer, Mexico's smallholder farmers, numbering around 1.5 million, are directly impacted by these price dynamics, which in turn affects food prices and tortilla costs, essential for household consumption.

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 August 2026 IMSS release shows unit labor costs at -1.37%, indicating that productivity gains are outpacing wages.
• Real wages in the formal sector are displaying a positive trajectory, with recent growth at 0.94%.
• Across sectors, retail outperforms manufacturing in real wage growth, with retail real wages reported at 5.30%.

The August 2026 IMSS release shows unit labor costs at -1.37%, indicating that productivity gains are outpacing wages. Following August's formal sector wage data, ULC in manufacturing has fallen, with a month-over-month decline of -1.58%. This decline suggests that productivity is improving relative to wage growth, which may enhance competitiveness in the sector, albeit at the potential cost of wage suppression. The current level sits at the 16th percentile historically, underscoring a challenging environment for wage earners in manufacturing.

Real wages in the formal sector are displaying a positive trajectory, with recent growth at 0.94%. Purchasing power among formal workers is improving, as evidenced by the positive real wage growth, despite a month-over-month decrease of -1.14%. This indicates that households are experiencing a modest increase in their purchasing power, which could bolster consumer spending in the near term, thereby supporting overall economic activity. However, the decline in the latest month highlights ongoing volatility in wage dynamics.

Across sectors, retail outperforms manufacturing in real wage growth, with retail real wages reported at 5.30%. This divergence in real wages highlights a significant gap wherein the retail sector is experiencing robust wage growth, contrasted with manufacturing's more subdued performance. The relative strength in retail suggests that consumer-facing sectors may be better positioned to absorb inflationary pressures, while manufacturing continues to grapple with slower wage dynamics. Consequently, this disparity could influence labor market trends and consumer behavior moving forward.

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 12-period-ahead forecast backtest over 32 evaluation windows using the SARIMAX. Out-of-sample 12-period-ahead forecast backtest over 32 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 2.87 vs 3.05 naive — 6% better than the benchmark, n=32); ULC Retail (RMSE 6.25 vs 6.39 naive — 2% better than the benchmark, n=28); Real Wage Manufacturing (RMSE 2.33 vs 2.71 naive — 14% better than the benchmark, n=32); Real Wage Retail (RMSE 2.99 vs 2.89 naive — 4% worse than the benchmark, n=28).

Key Takeaways

• The latest ENOE survey for August 2026 shows unemployment at 2.75%, indicating a slight increase from the previous month.
• By gender, the unemployment landscape reveals intriguing dynamics.
• The share of informal workers continues to exhibit a rising trend.

The latest ENOE survey for August 2026 shows unemployment at 2.75%, indicating a slight increase from the previous month. The August 2026 ENOE survey shows unemployment at 2.75%, reflecting a modest rise of 0.0071 from July. This level situates the unemployment rate around the 24th percentile historically, suggesting that while it remains low, the upward trend over the past two months warrants cautious observation. Underemployment, meanwhile, has increased to 10.9%, marking a notable rise of 0.0201 month-over-month and contrasting with a decline compared to the previous year. This divergence could signal underlying weaknesses in labor market stability.

By gender, the unemployment landscape reveals intriguing dynamics. Male and female unemployment rates are currently at 2.46% and 2.61%, respectively, with both rates experiencing a decline over the past three months. Notably, the male unemployment rate has decreased by 0.0776 from the previous month, while the female rate has similarly fallen by 0.0468. The slight divergence, with males experiencing a more pronounced downward trend, may suggest differing impacts of economic conditions on gender-specific employment opportunities.

The share of informal workers continues to exhibit a rising trend. The share of informal employment rose to 54.2% in August, up 0.0745 from July. This increase, although modest, positions informality around the 23rd percentile historically and indicates a persistent challenge within Mexico's labor market. As informality continues to rise, it may exacerbate the vulnerabilities of workers, suggesting a need for targeted policy interventions to enhance job security and formal employment opportunities.

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, manufacturing capacity utilization, business sales conditions, and the monthly private consumption indicator — 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. These are current-state estimates, not forecasts: they say where the labour market stands now given data published so far, filling the gap between quarterly survey releases. They are not predictions of where it will be next quarter.

Out-of-sample nowcast backtest over 39 evaluation windows using the Dynamic Factor Model (DFM). Out-of-sample nowcast backtest over 39 evaluation windows using the Dynamic Factor Model (DFM). RMSE measures the typical estimate error in the same units as the series; 'naive' is a no-change benchmark. Unemployment (RMSE 0.20 vs 0.12 naive — 71% worse than the benchmark, n=39); Underemployment (RMSE 0.55 vs 0.50 naive — 9% worse than the benchmark, n=31 over 11 periods); Male Unemployment (RMSE 0.21 vs 0.25 naive — 19% better than the benchmark, n=31 over 11 periods); Female Unemployment (RMSE 0.23 vs 0.29 naive — 20% better than the benchmark, n=31 over 11 periods).

Key Takeaways

• INEGI's Q3 2026 productivity release shows secondary sector output at 103, reflecting a notable upward trend driven primarily by manufacturing.
• Across the PCA indices, manufacturing composites reveal a nuanced landscape of productivity and sales dynamics.
• Within manufacturing, the top-performing subsectors are petroleum and coal products, alongside computer and electronic equipment, while food manufacturing lags behind.

INEGI's Q3 2026 productivity release shows secondary sector output at 103, reflecting a notable upward trend driven primarily by manufacturing. The latest INEGI productivity data for Q3 2026, released on October 13, indicates that secondary sector output stands at 103, a figure that places it in the 97th percentile historically. This upward movement, which saw a rise of 0.623 from the previous month, is largely propelled by the manufacturing subsector, demonstrating broad-based growth rather than being confined to a few industries. Notably, it has been 31 months since the series exceeded today’s level, underscoring a robust recovery trajectory.

Across the PCA indices, manufacturing composites reveal a nuanced landscape of productivity and sales dynamics. Manufacturing composites show a productive environment, with the productivity index at 1.18, representing an upward shift of 0.361 over the previous month. However, the divergence between productivity growth and labor demand, which remains negative at -1.34, raises sustainability concerns regarding the resilience of this growth. The robust sales index, in contrast, suggests strong demand, yet the mismatch with labor demand indicates potential challenges ahead.

Within manufacturing, the top-performing subsectors are petroleum and coal products, alongside computer and electronic equipment, while food manufacturing lags behind. The top-performing subsectors include petroleum and coal products, which have surged to a record high, reflecting an impressive 20.1 increase over the past six months. Conversely, the food manufacturing subsector has underperformed, indicating potential vulnerabilities within an otherwise strong manufacturing landscape. Given that manufacturing constitutes a substantial 65.56% of the secondary sector, the performance of these subsectors is critical for shaping the overall productivity outlook.

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

• Mexican news coverage of policy uncertainty in September 2026 stands at 10.7%, reflecting a significant decline in sentiment.
• By category, fiscal and monetary policies dominate the current uncertainty narrative.
• Compared with the officially published BBD index, the trends in policy uncertainty align closely.

Mexican news coverage of policy uncertainty in September 2026 stands at 10.7%, reflecting a significant decline in sentiment. News-based policy uncertainty in September 2026 shows a share of articles tagged as policy-uncertain at 10.7%. This marks a notable reduction compared to the preceding three-month trend of 19.3% and a 12-month trend of 22.5%. The current level indicates a clear downward trajectory, suggesting a potential easing of concerns regarding policy stability as the economy navigates a complex landscape.

By category, fiscal and monetary policies dominate the current uncertainty narrative. Within the uncertainty narrative, the most significant movement has been observed in fiscal policy, which has decreased by 1.0% to now account for 2.0% of articles. Monetary policy uncertainty also contributes prominently, underscoring the delicate balance policymakers must strike as they assess economic signals. This shift indicates a reallocation of focus among stakeholders, potentially reflecting growing confidence in certain fiscal measures despite broader concerns.

Compared with the officially published BBD index, the trends in policy uncertainty align closely. Against the Baker-Bloom-Davis benchmark, the news-derived Economic Policy Uncertainty index aligns with the BBD index, which recorded a value of 109.6 for September 2026, also reflecting a decline over the past three months. This convergence suggests that both measures are capturing similar underlying dynamics in the economic landscape, with decreasing concerns about policy uncertainty resonating across different analytical frameworks. The consistent downward trend in both indices reinforces the narrative of a stabilizing environment, albeit amidst ongoing vigilance regarding external pressures.

The Economic Policy Uncertainty (EPU) index tracks the share of Mexican news articles whose text matches terms spanning three categories — the economy, uncertainty, and policy — scraped daily from five major outlets since 2015 and aggregated into daily, weekly, and monthly indices across 15 policy categories (monetary, fiscal, trade, regulation, and more). This news-derived measure is compared against the externally-published Baker-Bloom-Davis (BBD) Mexico EPU index (policyuncertainty.com), the original academic methodology on which this approach is based. Because uncertainty coverage often front-runs formal policy announcements, the index provides an early, text-based signal of shifting attention toward economic policy risk.

Key Takeaways

• The September 2026 SPF survey shows the aggregate Concern Index at 2.62, reflecting a drop of 0.22 from the previous month.
• Economists have identified public insecurity, US trade policy, and a lack of structural change as the top growth constraints currently cited.
• The perceived probability of recession among surveyed economists stands at 25.3%, reflecting a moderate level of concern.
• According to forecasters, the peso is perceived as undervalued in the current month.

The September 2026 SPF survey shows the aggregate Concern Index at 2.62, reflecting a drop of 0.22 from the previous month. The September 2026 SPF survey shows the aggregate Concern Index at 2.62, positioning it around the 56th percentile. This marks a downward movement, continuing a streak of declining concerns for the first time in over a year. With the index falling by 0.22, it suggests that while worries persist, the intensity is easing, potentially reflecting shifting economic expectations.

Economists have identified public insecurity, US trade policy, and a lack of structural change as the top growth constraints currently cited. The key constraints currently cited include public insecurity at 9.5%, US trade policy at 6.4%, and a lack of structural change at 4.8%. The most significant month-over-month mover is public insecurity, which saw an increase of 2.16%. This signal indicates that while some concerns are subsiding, the persistent threat of public insecurity remains a critical challenge for economic stability.

The perceived probability of recession among surveyed economists stands at 25.3%, reflecting a moderate level of concern. Recession concerns among surveyed economists are currently moderate, as the Anxious Index indicates a 25.3% probability of recession compared to the previous quarter. This level is elevated relative to historical norms, suggesting that while the economy shows signs of recovery, uncertainty lingers. The outlook for the next quarter is slightly lower at 22.0%, hinting at a cautious optimism moving forward.

According to forecasters, the peso is perceived as undervalued in the current month. FX expectations suggest that forecasters see the peso as undervalued by 0.004 relative to actual rates. This reflects a more optimistic view in the short term, although the outlook turns bearish for the following month with expectations of a stronger peso than anticipated. Such fluctuations highlight the volatility in currency forecasts, emphasizing the need for careful monitoring in light of broader economic conditions.

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

• Bond prices as of 2026-10-29 show the 10Y-3Y spread at 1.53%, reflecting a normal curve shape with no inversions present.
• The curve shape suggests that while the market anticipates a hold on the policy rate, there’s a persistent tension in the outlook.

Bond prices as of 2026-10-29 show the 10Y-3Y spread at 1.53%, reflecting a normal curve shape with no inversions present. The latest yield curve data reveals that the nominal 10Y-3Y spread has increased by 0.16% compared to the previous observation, while the real spread sits at 1.13%, also indicating a steady state. With the implied inflation spread at 0.40%, the market appears to be pricing in modest inflation expectations, suggesting a belief that inflation pressures may stabilize but not necessarily decline significantly anytime soon. This mix of spreads signals caution among investors as they digest the implications of ongoing geopolitical uncertainties and domestic economic factors.

The curve shape suggests that while the market anticipates a hold on the policy rate, there’s a persistent tension in the outlook. Markets appear to be pricing in a likely hold from Banxico at the upcoming meeting, reflecting a cautious stance against a backdrop of inflationary pressures stemming from advanced economies. However, the relatively flat nature of the yield curve also hints at some skepticism regarding the central bank's ability to navigate these challenges effectively, underscoring a disconnect between market sentiment and the broader economic narrative. As Banxico weighs its next steps, these signals will be crucial for understanding how it balances growth concerns with inflation management.

When investors and businesses trust that monetary policy will remain credible and predictable, long-term interest rates respond more smoothly to central bank signals. Yield curve spreads between long and short maturities serve as a real-time gauge of this alignment: a stable, upward-sloping curve suggests markets expect gradual normalization, while persistent inversions often signal that markets anticipate policy shifts before they are announced. For Mexico, where inflation targeting depends on anchoring expectations across a diverse investor base, the 10-year minus 3-year spread offers a compact summary of whether policy communication is landing as intended.

Yield curve spreads are filtered using a Nelson-Siegel Dynamic Factor Model (NS-DFM) estimated on weekly data. The model ingests 16 synthetic yield curve points — 11 nominal maturities (overnight through 30 years) and 5 real maturities (overnight through 30 years) — fitted via Nelder-Mead optimization on Banxico bond prices. Factor loadings follow the Diebold-Li (2006) Nelson-Siegel parameterization, decomposing each yield curve into level, slope, and curvature components for both real rates and implied inflation. The Kalman smoother extracts filtered spread estimates that track the underlying signal in daily bond market noise.

Key Takeaways

• Banxico's October 2026 credit release shows money market spreads tightening, reflecting a cautious stance in a complex economic landscape.
• The total annual cost of mortgages remains relatively high, posing challenges for affordability amid tightening credit conditions.
• Corporate financing patterns reveal a strong preference for fixed-rate debt amid rising interest rate volatility.

Banxico's October 2026 credit release shows money market spreads tightening, reflecting a cautious stance in a complex economic landscape. Following the latest October lending data, rate premia have narrowed significantly, with TIIE 28d and TIIE 91d rates now at 0.28% and 0.31%, respectively, compared to the policy rate. This tightening trend, with spreads down 0.0564% from last month, indicates a growing confidence among lenders despite ongoing inflation pressures. The narrowing spreads suggest that market participants are adjusting their expectations, potentially stabilizing lending conditions ahead of Banxico's upcoming policy meeting.

The total annual cost of mortgages remains relatively high, posing challenges for affordability amid tightening credit conditions. Household mortgage rates now average a total annual cost (CAT) of 13.8%, with a range from 10.7% to 28.2%. The current rate environment reflects the impacts of the policy rate on borrowing costs, making it crucial for potential homeowners to navigate these elevated expenses carefully. As lending conditions tighten, this could further strain affordability for many families looking to enter the housing market.

Corporate financing patterns reveal a strong preference for fixed-rate debt amid rising interest rate volatility. Debt issuance patterns show that firms are increasingly opting for fixed-rate financing, which now constitutes 19.71% of total debt, compared to 10.76% for variable inflation-linked rates. This shift indicates that companies are looking to lock in rates amidst uncertain economic conditions and expectations of future rate hikes. Given the record high in debt issuance normalized by GDP, firms seem to be positioning themselves strategically to weather potential financial headwinds.

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.