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 just jumped to $106.30 as of May 2026, reflecting a staggering YoY increase of 65.8%.
• Copper prices are hitting $13,483.75, up 41.5% YoY as of May 2026.
• Corn prices are at $215.62, reflecting a modest YoY increase of 5.3%.

Brent oil prices just jumped to $106.30 as of May 2026, reflecting a staggering YoY increase of 65.8%. Brent oil prices through May 2026 show a notable rise, landing at $106.30. This marks a significant YoY change of +65.8%, and the momentum is clearly up, with prices climbing in recent days. For Mexico, where oil is a major export and accounts for about 15% of federal revenue, these figures are crucial — they could bolster government finances and Pemex operations.

Copper prices are hitting $13,483.75, up 41.5% YoY as of May 2026. With copper data updated to May 2026, the current price stands at $13,483.75, showcasing a robust YoY increase of 41.5%. The trend remains upward, indicating strong demand in the global market. Given that Sonora dominates copper production in Mexico, this surge could enhance regional economic activity, despite the sector's small employment footprint.

Corn prices are at $215.62, reflecting a modest YoY increase of 5.3%. As of May 2026, corn prices reached $215.62, showing a slight YoY rise of 5.3%. The trend appears stable, neither soaring nor plummeting significantly. This is particularly relevant for Mexico, where corn is a staple for many, and price stability is key for the 1.5 million smallholder farmers dependent on this crop.

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 May 2026 IMSS release shows unit labor costs at -3.41%, indicating productivity gains outpacing wage growth.
• Real wages in the formal sector reflect a concerning trend, with manufacturing experiencing negative growth.
• Across sectors, a stark divergence emerges, particularly in real wage growth.

The May 2026 IMSS release shows unit labor costs at -3.41%, indicating productivity gains outpacing wage growth. Following May's formal sector wage data, ULC has fallen, sitting at the 19th percentile with a month-over-month increase of 1.18. This decline suggests that productivity is growing faster than wages, which could enhance competitiveness but may also hint at potential wage suppression in the manufacturing sector. Employers are gaining an edge, but this trend could be a double-edged sword for workers as their earnings lag behind productivity improvements.

Real wages in the formal sector reflect a concerning trend, with manufacturing experiencing negative growth. Currently, real wages in manufacturing are at -2.59%, signifying a decline in purchasing power for households dependent on this sector. As the cost of living continues to rise, households are feeling the pinch, which could dampen consumer spending and overall economic sentiment. Meanwhile, the retail sector paints a different picture, with real wages up at 6.03%, providing a breath of fresh air for those involved in retail work.

Across sectors, a stark divergence emerges, particularly in real wage growth. While retail workers enjoy a robust uptick in real wages, manufacturing lags significantly behind, underscoring the varying economic realities faced by workers in these sectors. The contrasting performance highlights the resilience of the retail sector amid broader economic challenges, while manufacturing workers are still grappling with wage stagnation. This divergence could influence labor dynamics and spending patterns, impacting overall economic recovery.

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 May 2026 shows unemployment at 3.43%, reflecting a continued downward trend that has persisted for over four years.
• By gender, male unemployment sits at 3.31%, while female unemployment is slightly higher at 3.48%.
• The share of informal workers in the economy has risen, now standing at 55.7%, which is concerning given its high percentile ranking.

The latest ENOE survey for May 2026 shows unemployment at 3.43%, reflecting a continued downward trend that has persisted for over four years. The May 2026 ENOE survey shows unemployment at 3.43%, around the 1st percentile historically and marking a decrease of 0.01% from April. This downward trajectory has been consistent, with the rate now on a 58-month streak of declines. The implications are clear: while the labor market appears to be tightening, ongoing structural challenges remain, particularly in relation to economic policy uncertainty.

By gender, male unemployment sits at 3.31%, while female unemployment is slightly higher at 3.48%. Male and female unemployment rates registered at 3.31% and 3.48%, respectively, indicating a modest divergence with women's unemployment slightly outpacing men's. Despite both rates trending downward, the persistence of this gap suggests different labor market dynamics at play, possibly influenced by sectoral employment differences and varying access to opportunities.

The share of informal workers in the economy has risen, now standing at 55.7%, which is concerning given its high percentile ranking. Informal employment has increased to 55.7%, reflecting a rise that points to economic insecurity as workers may be turning to less stable job arrangements. This trend signals potential weaknesses in the formal labor market, and a growing reliance on informal sectors could complicate efforts to improve overall 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 20 evaluation windows using the Dynamic Factor Model (DFM). Out-of-sample backtest over 20 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 22.27 vs 0.13 naive, n=17); 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 Q2 2026 productivity release shows secondary sector output at 102, reflecting a slight decline of -0.79% from the previous month, but a modest increase of 0.313% from six months ago.
• Across the PCA indices, manufacturing composites show a concerning divergence between productivity and labor demand metrics.
• Within manufacturing, the top-performing subsectors include transport equipment and food, both showcasing resilience amid overall sector fluctuations.

INEGI's Q2 2026 productivity release shows secondary sector output at 102, reflecting a slight decline of -0.79% from the previous month, but a modest increase of 0.313% from six months ago. Despite the recent dip, the aggregate index remains in the 81st percentile historically, suggesting robust underlying strength. This performance is largely driven by manufacturing, which continues to dominate the secondary sector with a hefty 66.57% share. While construction also holds up well at a healthy 85th percentile, mining is lagging significantly, underscoring a lack of broad-based growth across all subsectors.

Across the PCA indices, manufacturing composites show a concerning divergence between productivity and labor demand metrics. Productivity has slipped by -0.223%, while sales increased slightly by 0.0281%, indicating a potential buildup of inventory pressure. This misalignment raises sustainability concerns as firms may face challenges in maintaining output levels amid rising costs and declining demand for labor.

Within manufacturing, the top-performing subsectors include transport equipment and food, both showcasing resilience amid overall sector fluctuations. Transport equipment experienced a notable rise of 2.99%, while the food subsector remains strong at the 84th percentile. In contrast, the petroleum and coal products sector is struggling, with a significant decline of -10.5%, which reflects broader issues in energy pricing affecting manufacturing dynamics.

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

• Overall uncertainty at a multi-month low.
• Sovereign-debt and currency concern is doing most of the cooling.
• What to watch.

Overall uncertainty at a multi-month low. Mexico's news-based Economic Policy Uncertainty index fell to 19.3 in June 2026, its lowest reading in months and the fourth straight monthly decline from 21.9 in March (20.0 in April, 19.8 in May). The index measures the share of Mexican news coverage discussing economic-policy uncertainty, so the drift lower signals a calmer policy-news environment through the second quarter.

Sovereign-debt and currency concern is doing most of the cooling. The sovereign-debt/currency sub-index fell to 16.1 from 21.9 in March — the single largest contributor to the overall decline. Fiscal-policy uncertainty also eased to 7.1 (from 8.4 in March), and trade-policy uncertainty stayed subdued at 7.6. Monetary-policy uncertainty was the one sub-index to tick up in June, to 14.5 after bottoming at 13.2 in May, consistent with renewed attention on the rate path.

What to watch. These are complete-month figures; the current partial month is excluded until it closes. A sustained rebound in the monetary or trade sub-indices would be the first sign the Q2 downtrend is turning.

Key Takeaways

• The June 2026 SPF survey reveals a modest decline in economic concerns.
• The latest survey highlights significant constraints on growth, particularly in public security and trade policy.
• Recession concerns remain moderate, reflecting a cautious outlook among economists.
• Expectations regarding the peso's valuation indicate a prevailing sense of overvaluation among forecasters.

The June 2026 SPF survey reveals a modest decline in economic concerns. The June 2026 SPF survey shows the aggregate Concern Index at 2.83, placing it around the 63rd percentile. This marks a decrease of -0.13 from the previous month, suggesting a slight easing in overall economic anxieties. Nonetheless, the index has experienced a downward trend over the past two months, indicating persistent underlying concerns among economic observers.

The latest survey highlights significant constraints on growth, particularly in public security and trade policy. Economists have identified public insecurity as the top constraint, currently accounting for 9.2% of concerns, followed closely by US trade policy at 8.2%. Notably, public insecurity has decreased by -0.46 from the previous month, while US trade policy has seen a substantial increase of +1.80, underscoring its growing impact on economic sentiment.

Recession concerns remain moderate, reflecting a cautious outlook among economists. The perceived probability of recession stands at 10.0%, which is moderate compared to historical norms. This indicates a stable sentiment among surveyed economists when juxtaposed with the previous quarter, suggesting that while fears exist, they are not at alarming levels. The outlook for the next quarter is slightly more pronounced at 15.0%, indicating a potential uptick in recession fears.

Expectations regarding the peso's valuation indicate a prevailing sense of overvaluation among forecasters. According to forecasters, the current FX forecast misalignment reflects a perceived overvaluation of the peso, with a deviation of +0.058. This sentiment is consistent across multiple horizons, as forecasters anticipate a similar pattern in the following months, suggesting a sustained outlook of a weaker peso than expected.

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 2026-07-30 show the 10Y-3Y spread at 1.29%, a modest improvement relative to the previous observation, while the real spread stands at 0.66%.
• The curve shape suggests that markets are aligning with expectations of an imminent interest rate cut by Banxico.

Bond prices as of 2026-07-30 show the 10Y-3Y spread at 1.29%, a modest improvement relative to the previous observation, while the real spread stands at 0.66%. The latest yield curve data reveals that the nominal 10Y-3Y spread has decreased by 0.03% compared to prior observations, indicating a stable market sentiment. In contrast, the real spread has shown an upward trend, reflecting a 0.14% increase, which points to a modest deceleration in inflation expectations. The breakeven inflation spread, currently at 0.63%, suggests that markets anticipate subdued inflationary pressures ahead, aligning with the recent easing of headline inflation rates. This configuration of spreads underlines a complex interplay of factors that warrants close scrutiny from market participants.

The curve shape suggests that markets are aligning with expectations of an imminent interest rate cut by Banxico. The current yield curve configuration, characterized by a declining nominal spread and an upward trend in real yields, indicates a market sentiment that anticipates a shift in monetary policy. However, the persistent concerns regarding inflation and external economic pressures suggest a potential disconnect between market signals and the central bank's cautious stance, as articulated in recent minutes. This divergence underscores the uncertainty that policymakers face as they navigate between fostering growth through lower rates and maintaining price stability in a challenging global environment.

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 July 2026 credit release shows money market spreads at historically low levels, indicating a tightening trend in funding conditions.
• The total annual cost of mortgages continues to present a significant burden for borrowers, with an average CAT of 14%.
• Debt issuance patterns show a clear preference for fixed-rate financing, reflecting firms' desire for stability in a volatile economic environment.

Banxico's July 2026 credit release shows money market spreads at historically low levels, indicating a tightening trend in funding conditions. Following the latest July lending data, rate premia have narrowed significantly, with the ON TIIE funding rate at 0.00% and the TIIE 28-day rate at 0.26%. This tightening reflects a -0.0559 decline compared to the previous month, suggesting that borrowing costs are becoming more favorable for the non-financial private sector amidst a backdrop of declining inflation expectations. This environment may encourage increased lending activity as firms seek to take advantage of lower funding costs.

The total annual cost of mortgages continues to present a significant burden for borrowers, with an average CAT of 14%. Household mortgage rates reveal a troubling trend, with the CAT ranging from 10.7% to 28.2%. While the policy rate's potential adjustment may influence future costs, the current high levels of mortgage rates constrain affordability, particularly for first-time homebuyers. This situation underscores the importance of monitoring how forthcoming monetary policy changes could impact household financial stability.

Debt issuance patterns show a clear preference for fixed-rate financing, reflecting firms' desire for stability in a volatile economic environment. In the current landscape, fixed-rate debt comprises 19.47% of total issuance, while variable rates have also seen notable participation. This shift indicates that companies are opting for the predictability of fixed rates amid economic uncertainties, suggesting a cautious approach to financing. As firms navigate the complexities of the market, this trend may have implications for future investment strategies and overall economic growth.

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.