Understanding Mexico's economic landscape via data transformations

Key Takeaways

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

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

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

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

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

Out-of-sample backtest over 12 evaluation windows using the Dynamic Factor Model (DFM). Out-of-sample backtest over 12 evaluation windows using the Dynamic Factor Model (DFM). RMSE measures the typical forecast error in the same units as the series; 'naive' is a no-change benchmark. House Price Nowcast (RMSE 1.32 vs 0.66 naive, n=12).

Key Takeaways

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

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

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

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

Commodity prices feed directly into Mexico's inflation pulse and terms of trade. Oil and corn affect energy and food costs, while copper is a proxy for global industrial demand. For policymakers, sharp commodity swings can shift inflation expectations and fiscal balances, making these prices critical to monitor.

Key Takeaways

• The January 2026 IMSS release shows unit labor costs at 2.27%, reflecting a notable increase, indicating that wages are outpacing productivity growth.
• Purchasing power among formal workers continues to show positive momentum, with real wages improving significantly.
• Across sectors, a discernible divergence is evident in real wage growth, particularly benefiting the retail sector.

The January 2026 IMSS release shows unit labor costs at 2.27%, reflecting a notable increase, indicating that wages are outpacing productivity growth. Following January's formal sector wage data, ULC in manufacturing has risen, with the growth rate now at 2.27%, around the 62nd percentile. This upward trend suggests that wages are increasing faster than productivity, which could lead to cost-push inflation pressures and diminish competitiveness in the sector.

Purchasing power among formal workers continues to show positive momentum, with real wages improving significantly. Real wages in the formal sector increased to 4.09%, indicating a positive trajectory for purchasing power. This growth implies that households are experiencing an enhancement in their financial well-being, allowing for better consumption prospects amid a generally challenging economic landscape.

Across sectors, a discernible divergence is evident in real wage growth, particularly benefiting the retail sector. Manufacturing and retail diverge in terms of real wages, with the retail sector outperforming, currently at 4.09%. In contrast, manufacturing real wages have stagnated, reflecting an environment where retail workers are gaining more purchasing power relative to their manufacturing counterparts.

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 shows unemployment at 3.44%, a record high that hasn’t budged in months, reflecting a stagnant labor market.
• By gender, male and female unemployment rates remain alarmingly high, with minimal divergence.
• Informal employment is on the rise, signaling deeper issues within the labor market.

The latest ENOE survey shows unemployment at 3.44%, a record high that hasn’t budged in months, reflecting a stagnant labor market. The latest ENOE survey for January 2026 reveals unemployment stuck at 3.44%, marking it at the 100th percentile—a concerning peak that signals extended labor market distress. This figure has not changed month-over-month, indicating a prolonged standstill in job growth. The absence of improvement in the unemployment rate underscores the urgent need for policy responses as businesses grapple with rising economic uncertainties.

By gender, male and female unemployment rates remain alarmingly high, with minimal divergence. Male unemployment is currently at 3.5%, closely trailing female unemployment at 3.62%. Both genders are experiencing similar trends, with slight increases over the past month, hinting at shared challenges in job availability across the board. The near parity in unemployment rates emphasizes that the labor market's struggles affect all demographics, raising questions about the effectiveness of current policies.

Informal employment is on the rise, signaling deeper issues within the labor market. The share of informal workers has climbed to 55.9%, placing it at the 98th percentile historically. This increase of 0.355% month-over-month signals a troubling trend towards greater economic instability and job insecurity. As more workers turn to informal employment, it raises critical concerns about the long-term sustainability of the labor market and the potential impacts on consumer spending and overall economic health.

Labor slack and its composition shape inflation pressure, policy timing, and social risk. Unemployment, underemployment, and unemployment by gender reveal how broad and uneven slack is. In Mexico's large informal sector, the informal employment share can swing sharply — often contracting faster in downturns as unprotected jobs are cut first, then rebounding early — masking true slack if headline unemployment alone is tracked. Tracking these dimensions helps distinguish cyclical slack from structural mismatches and calibrate monetary policy accordingly.

Between quarterly ENOE survey releases, a Dynamic Factor Model (DFM) nowcasts employment indicators using higher-frequency auxiliary data. The model ingests monthly series — industrial production, consumer confidence, capacity utilization, retail sales, and private consumption — alongside quarterly GDP components to extract common factors that track the business cycle. When any auxiliary series receives new data, the Kalman filter updates the nowcast, providing an early signal before the next official employment release.

Out-of-sample backtest over 17 evaluation windows using the Dynamic Factor Model (DFM). Out-of-sample backtest over 17 evaluation windows using the Dynamic Factor Model (DFM). RMSE measures the typical forecast error in the same units as the series; 'naive' is a no-change benchmark. Unemployment (RMSE 0.51 vs 0.13 naive, n=14); Underemployment (RMSE 1.26 vs 0.50 naive, n=11); Male Unemployment (RMSE 0.44 vs 0.26 naive, n=11); Female Unemployment (RMSE 0.44 vs 0.28 naive, n=11).

Key Takeaways

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

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

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

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

Productivity trends reveal the economy's capacity to grow without stoking inflation. In Mexico, productivity in the secondary sector — mining, energy, construction, and especially manufacturing — signals how efficiently output expands relative to inputs. Strong productivity gains mean firms can meet demand without raising prices, easing inflation pressure and supporting sustainable wage growth. Weak productivity, by contrast, constrains supply, making cost shocks more inflationary. Manufacturing deserves closer scrutiny, as its diverse subsectors respond differently to global demand, exchange rate shifts, and investment cycles. Tracking these patterns helps judge whether growth is supported by efficiency gains or reliant on credit and labor cost increases.

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

Key Takeaways

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

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

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

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

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

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

Key Takeaways

• Banxico's April 2026 credit release shows money market spreads tightening, signaling cautious lending conditions.
• Household mortgage rates remain elevated, posing challenges for affordability.
• Debt issuance patterns show a preference for fixed-rate financing amid market volatility.

Banxico's April 2026 credit release shows money market spreads tightening, signaling cautious lending conditions. Following the latest April lending data, rate premia have narrowed, with TIIE 28d and 91d rates now at 0.34% and 0.38%, respectively. This tightening trend reflects broader economic uncertainty and a potential shift in credit conditions as the market anticipates a hold on policy rates. The current spread, at 0.235, is around the 17th percentile, suggesting limited room for further declines in borrowing costs, which could challenge firms relying on easy financing.

Household mortgage rates remain elevated, posing challenges for affordability. The total annual cost of mortgages (CAT) averages 13.9%, with a range from 10.7% to 28.2%. While the policy rate's influence on mortgage costs remains, the high CAT levels indicate significant affordability issues for consumers, particularly as economic pressures mount. As households grapple with rising living costs, this could dampen demand in the housing market.

Debt issuance patterns show a preference for fixed-rate financing amid market volatility. Corporate financing is increasingly skewed toward fixed-rate debt, now making up 18.74% of total issuance, as firms seek to lock in costs amidst an uncertain interest rate environment. This shift indicates a strategic move to mitigate risks associated with variable rates, which can fluctuate with market conditions. However, the overall debt issuance remains low, reflecting cautious sentiment among firms as they navigate 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.