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 3.4%, hitting the 1st percentile historically, but the underemployment rate remains stubbornly high.
• By gender, male unemployment is clocking in at 3.5%, compared to female unemployment at 3.63%, marking a concerning divergence.
• Informal employment is on the rise, now at 56%, which underscores a worrying trend in job security.

The latest ENOE survey shows unemployment at 3.4%, hitting the 1st percentile historically, but the underemployment rate remains stubbornly high. The March 2026 ENOE survey shows unemployment at 3.4%, around the 1st percentile, continuing its downward streak with a drop of -0.0134% from the previous month. Despite this positive momentum, the underemployment rate lingers at a high 12.2%, indicating a significant portion of the workforce is not fully utilized. This disparity signals that while fewer people are officially jobless, many still struggle to find adequate work, highlighting ongoing challenges in the labor market.

By gender, male unemployment is clocking in at 3.5%, compared to female unemployment at 3.63%, marking a concerning divergence. Male and female unemployment rates are showing troubling signs of divergence, with men at 3.5% and women at 3.63%, both near historical highs. While male unemployment has seen a slight uptick of 0.158% month-over-month, female unemployment also rose by 0.0905%. This gap raises questions about the labor market's ability to provide equitable opportunities for both genders amidst fluctuating economic conditions.

Informal employment is on the rise, now at 56%, which underscores a worrying trend in job security. The share of informal workers has climbed to 56%, reflecting a significant increase of 0.383% from last month. This persistent rise in informality indicates that many workers are still unable to secure stable, formal employment. Such trends not only impact individual livelihoods but also pose challenges for economic growth and public policy, as informal sectors often lack the protections and benefits of formal employment.

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 16 evaluation windows using the Dynamic Factor Model (DFM). Out-of-sample backtest over 16 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 0.41 vs 0.10 naive, n=13); Underemployment (RMSE 1.25 vs 0.49 naive, n=10); Male Unemployment (RMSE 0.27 vs 0.25 naive, n=10); Female Unemployment (RMSE 0.27 vs 0.27 naive, +0% improvement, n=10).

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 February 2026 SPF survey reveals a modest decline in economic sentiment.
• The evolving landscape of economic constraints highlights significant concerns for policymakers.
• Recession concerns are currently perceived to be moderate among economists.
• Current FX expectations indicate that forecasters see the peso as overvalued against the dollar.

The February 2026 SPF survey reveals a modest decline in economic sentiment. The February 2026 SPF survey shows the aggregate Concern Index at 2.82, placing it around the 62nd percentile. This marks a slight decrease of 0.01 from the previous month, reflecting a continued trend of concern that has now persisted for three months. The implications of this decline suggest that while sentiment remains relatively elevated, there is a cautious outlook among economists regarding the immediate economic landscape.

The evolving landscape of economic constraints highlights significant concerns for policymakers. Economists have identified public insecurity as the foremost constraint, comprising 11.23% of the responses, followed closely by US trade policy at 7.64% and a lack of structural change at 4.40%. Notably, public insecurity has increased by 1.16% month-over-month, underscoring the growing anxiety surrounding safety and stability. Such persistent concerns signal potential challenges for both domestic and foreign investment confidence.

Recession concerns are currently perceived to be moderate among economists. The perceived probability of recession stands at 25.0% for the current quarter, positioning it in the 75th percentile historically, suggesting elevated concern relative to past norms. This moderate level reflects a cautious sentiment, as expectations for the next quarter indicate a slight decline to 20.0%. These figures may indicate a stabilizing economic outlook but also highlight the need for vigilance in monitoring underlying risks.

Current FX expectations indicate that forecasters see the peso as overvalued against the dollar. According to forecasters, the current month's misalignment shows the peso perceived as overvalued by 0.157, a signal of potential weakness in the currency relative to expectations. This sentiment persists across shorter-term forecasts, suggesting a consistent view of the peso's valuation over the coming months. Such perceptions could have implications for trade and investment flows, further complicating the economic landscape.

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 March 2026 credit release shows money market spreads tightening, indicating a shift in lending conditions.
• Household mortgage rates are presenting a challenging landscape for borrowers in the current economic climate.
• Debt issuance patterns indicate a cautious approach among corporations as they navigate the current financial landscape.

Banxico's March 2026 credit release shows money market spreads tightening, indicating a shift in lending conditions. Following the latest March lending data, rate premia have narrowed considerably, with TIIE 28d at 0.33% and TIIE 91d at 0.38%, reflecting a tightening trend. This marks a notable reduction of 0.109 from the previous month. Such adjustments in the spreads suggest a more favorable lending environment, albeit still within a context of cautious economic sentiment and uncertainty regarding inflation trends.

Household mortgage rates are presenting a challenging landscape for borrowers in the current economic climate. The total annual cost of mortgages stands at an average of 13.9%, with a range from 11.1% to 28.2%. This pass-through of policy rates continues to strain affordability for many households, especially as economic pressures linger in the background.

Debt issuance patterns indicate a cautious approach among corporations as they navigate the current financial landscape. Debt issuance composition reveals a preference for fixed-rate instruments, which constitute 18.74% of financing, while variable rates, including inflation-linked options, account for a combined 19.92%. This balance suggests firms are opting for stability in a volatile economic environment, reflecting broader concerns over future interest rate movements.

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.