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 updated through July 2026 reveal a notable observation at $83.73, reflecting a 20.4% increase year-on-year.
• Copper prices have reached $13,542.82 as of July 2026, marking a remarkable 38.6% increase year-on-year.
• Corn prices have surged to $213.19 in July 2026, reflecting a year-on-year increase of 10.8%.

Brent oil prices updated through July 2026 reveal a notable observation at $83.73, reflecting a 20.4% increase year-on-year. With Brent oil prices now at $83.73 as of July 2026, we observe a significant 20.4% increase compared to the same month last year. Although prices have shown a slight downturn of 0.9% month-on-month, the overall annual momentum remains strong, underscoring Brent's critical role in Mexico's federal revenue and its impact on state-run Pemex operations.

Copper prices have reached $13,542.82 as of July 2026, marking a remarkable 38.6% increase year-on-year. Currently priced at $13,542.82, copper has demonstrated a year-on-year growth of 38.6% as of July 2026. While month-on-month changes indicate a marginal decline of 0.1%, the broader upward trend highlights the continued strength of Mexico's mining sector, particularly in Sonora, which dominates national production.

Corn prices have surged to $213.19 in July 2026, reflecting a year-on-year increase of 10.8%. As of July 2026, corn is priced at $213.19, showcasing a 10.8% rise over the past year. This upward trend, with a month-on-month increase of 8.9%, is particularly relevant given that corn remains a staple in the Mexican diet, directly influencing food prices and the livelihoods of approximately 1.5 million smallholder farmers.

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 September 2026 IMSS release shows unit labor costs at 2.45%, reflecting a modest deceleration.
• Real wages in the formal sector demonstrate a positive trend, contributing to improved purchasing power among workers.
• Across sectors, a noticeable divergence exists in real wage dynamics, with retail significantly outperforming manufacturing.

The September 2026 IMSS release shows unit labor costs at 2.45%, reflecting a modest deceleration. Following September's formal sector wage data, ULC in manufacturing is rising, indicating that wages are outpacing productivity gains. The current growth rate sits at the 71st percentile, having declined by 0.15% month-on-month. This upward trajectory in labor costs suggests potential cost-push inflation pressures that could impact overall economic competitiveness.

Real wages in the formal sector demonstrate a positive trend, contributing to improved purchasing power among workers. The latest data reveals manufacturing real wage growth at 2.05%, indicating a modest increase in purchasing power, albeit a decrease of 3.86% year-on-year. This scenario is favorable for households as it enhances their ability to manage expenses, particularly in a context of fluctuating inflation pressures.

Across sectors, a noticeable divergence exists in real wage dynamics, with retail significantly outperforming manufacturing. Retail real wages have surged to 6.02%, considerably higher than manufacturing's 2.05%, suggesting that consumers in the retail sector are experiencing a more robust improvement in purchasing power. This gap underscores the differing economic realities faced by workers in these sectors, which may have implications for consumer behavior and economic resilience.

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 31 evaluation windows using the SARIMAX. Out-of-sample 12-period-ahead forecast backtest over 31 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 2.79 vs 3.02 naive — 8% better than the benchmark, n=31); ULC Retail (RMSE 6.25 vs 6.39 naive — 2% better than the benchmark, n=28); Real Wage Manufacturing (RMSE 2.21 vs 2.65 naive — 17% better than the benchmark, n=31); Real Wage Retail (RMSE 2.99 vs 2.89 naive — 4% worse than the benchmark, n=28).

Key Takeaways

• The latest ENOE survey indicates a modest uptick in unemployment, signaling potential labor market concerns.
• By gender, a nuanced picture emerges with regard to unemployment rates.
• The share of informal workers has seen a recent increase, raising questions about labor market stability.

The latest ENOE survey indicates a modest uptick in unemployment, signaling potential labor market concerns. The 2026-09 ENOE survey shows unemployment at 2.73%, reflecting a slight increase of 0.0065% from the previous month. This marks a position around the 21st percentile historically, suggesting that while still relatively low, the labor market is experiencing pressures that could warrant attention. Notably, the underemployment rate has also risen, currently standing at 10.9%, which is approximately at the 17th percentile, underscoring ongoing challenges in labor quality and job satisfaction.

By gender, a nuanced picture emerges with regard to unemployment rates. Male and female unemployment rates are currently at 2.44% and 2.59%, respectively, reflecting a modest divergence in their trajectories. While male unemployment has experienced a decrease of 0.08% month-on-month, female unemployment has seen a slight decline of 0.0478%, indicating that both genders are facing distinct labor market dynamics that may merit differentiated policy responses.

The share of informal workers has seen a recent increase, raising questions about labor market stability. The share of informal employment currently stands at 54.2%, having risen by 0.0794% from the previous month. This upward trend, particularly given its position at the 23rd percentile historically, signals a concerning shift that could reflect underlying economic vulnerabilities. An increase in informality often suggests a lack of access to stable, quality jobs, which could have broader implications for economic resilience and growth.

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 38 evaluation windows using the Dynamic Factor Model (DFM). Out-of-sample nowcast backtest over 38 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 0.21 vs 0.12 naive — 71% worse than the benchmark, n=38); 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

• The latest INEGI productivity data for Q3 2026, released on September 12, reveals secondary sector output at 103, marking a 0.46% increase from the previous month.
• Across the PCA indices, manufacturing composites display a divergence that raises sustainability concerns, particularly as productivity continues to climb while sales are on a downward trend.
• Within manufacturing, the standout performer is the chemical industry, which has shown significant growth, while transport equipment has been a notable laggard.

The latest INEGI productivity data for Q3 2026, released on September 12, reveals secondary sector output at 103, marking a 0.46% increase from the previous month. INEGI's Q3 2026 productivity release shows secondary sector output at 103, reflecting a 0.46% increase month-on-month. The construction subsector is the main driver of this growth, while mining and energy lag behind, indicating a mixed performance across the sector. Overall, this trend suggests a reliance on construction for progress, rather than a widespread uplift across all industries.

Across the PCA indices, manufacturing composites display a divergence that raises sustainability concerns, particularly as productivity continues to climb while sales are on a downward trend. Manufacturing composites show a notable divergence, with productivity rising while sales have recently dipped. This disconnect, especially alongside stagnant labor demand, raises red flags about the sustainability of current growth trends in manufacturing. Without a corresponding increase in sales, the productivity gains may not translate into long-term viability for the sector.

Within manufacturing, the standout performer is the chemical industry, which has shown significant growth, while transport equipment has been a notable laggard. Within manufacturing, the top-performing subsector is chemicals, which has enjoyed robust growth, contrasting sharply with transport equipment, which is experiencing declines. Given that chemicals hold a significant share of the manufacturing landscape, their performance is crucial for overall sector health. Meanwhile, the struggles in transport equipment underscore the uneven nature of recovery, pointing to potential vulnerabilities in the manufacturing ecosystem.

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

• The latest yield curve data reveals the 10Y-3Y nominal spread at 1.48%, indicating a modest upward shift that underscores the market's evolving expectations.
• The curve shape suggests a growing consensus around a potential interest rate cut, yet signals remain mixed.

The latest yield curve data reveals the 10Y-3Y nominal spread at 1.48%, indicating a modest upward shift that underscores the market's evolving expectations. Bond prices as of 2026-10-09 show the 10Y-3Y spread at 1.48%, a 0.06% increase from the previous observation. The real spread stands at 0.87%, while the implied inflation spread is at 0.61%, indicating market participants foresee a controlled inflationary environment. This modest deceleration in spreads presents a complex picture, suggesting that while investors are cautiously optimistic, they remain acutely aware of potential inflationary pressures, particularly from external sources.

The curve shape suggests a growing consensus around a potential interest rate cut, yet signals remain mixed. Markets appear to be pricing in a 55% probability of a -19bp adjustment at the upcoming Banxico meeting, aligning with the recent easing of headline inflation. However, the cautious tone reflected in the committee's minutes highlights a disconnect; while markets anticipate immediate economic support, policymakers are wary of geopolitical risks and persistent inflationary pressures. This divergence underscores the delicate balancing act ahead for Banxico.

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 modestly, reflecting a significant shift in the lending landscape.
• The total annual cost of mortgages continues to reflect a tight market, with an average CAT of 13.8%, straddling a range of 10.7% to 28.2%.
• Debt issuance patterns show a pronounced preference for fixed-rate instruments, accounting for 19.58% of GDP, amid an upward trend in overall issuance.

Banxico's October 2026 credit release shows money market spreads tightening modestly, reflecting a significant shift in the lending landscape. Following the latest lending data, rate premia stand at 0.18, indicating a narrowing spread against the policy rate. This represents a reduction of -0.096 from the previous month, marking a two-month downward trend in spreads. The implications are clear: as funding costs decrease, access to credit may improve, potentially stimulating borrowing activity in a cautiously optimistic economic environment.

The total annual cost of mortgages continues to reflect a tight market, with an average CAT of 13.8%, straddling a range of 10.7% to 28.2%. This level of mortgage costs suggests that while the policy rate has not fully translated into lower borrowing costs for consumers, affordability remains a pressing concern. The modest pass-through of recent rate movements could limit the potential for increased home purchases, particularly among first-time buyers.

Debt issuance patterns show a pronounced preference for fixed-rate instruments, accounting for 19.58% of GDP, amid an upward trend in overall issuance. This shift indicates that firms are increasingly leaning towards more stable financing options as they navigate an uncertain economic landscape. The current record high in debt issuance normalized by GDP suggests a robust appetite for capital, yet it also raises questions about the sustainability of such financing strategies in the face of potential economic 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.