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

• Unit labor costs indicate wage pressures in manufacturing, complicating the inflation outlook.
• Purchasing power among formal workers shows notable improvement, benefiting households.
• Sectoral performance reveals a significant divergence, with retail outperforming manufacturing in real wage growth.

Unit labor costs indicate wage pressures in manufacturing, complicating the inflation outlook. The August 2026 IMSS release shows unit labor costs at 2.45%, reflecting a modest deceleration with a decrease of 0.15 from the previous month. This level positions ULC around the 71st percentile, suggesting that wages are growing faster than productivity. Such dynamics imply potential cost-push inflation pressures, which may challenge competitiveness in the sector.

Purchasing power among formal workers shows notable improvement, benefiting households. Real wages in the formal sector increased to 6.02%, signaling a positive shift in purchasing power for workers. This growth, alongside a monthly increase of 0.76, indicates that households are experiencing gains in their economic capacity, providing a reprieve from prior erosions in real income.

Sectoral performance reveals a significant divergence, with retail outperforming manufacturing in real wage growth. Across sectors, retail real wages are demonstrating stronger growth at 6.02%, compared to manufacturing's more modest 2.05%. This divergence underscores retail's resilience in bolstering purchasing power, while manufacturing grapples with rising unit labor costs that may impede further wage gains.

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 for August shows unemployment at 2.73%, continuing a slight downward trend amid broader economic uncertainties.
• By gender, the unemployment rates reveal some notable disparities.
• The share of informal workers in the economy is showing an upward trend.

The latest ENOE survey for August shows unemployment at 2.73%, continuing a slight downward trend amid broader economic uncertainties. The August ENOE survey shows unemployment at 2.73%, which is around the 19th percentile historically. This marks a modest decline of 0.0051% from the previous month, signaling a two-month downward streak. However, compared to six months ago, the unemployment rate has risen by 0.0543%, suggesting that while recent improvements are encouraging, the labor market is still grappling with longer-term challenges.

By gender, the unemployment rates reveal some notable disparities. Male and female unemployment rates are currently at 2.52% and 2.64%, respectively. The male rate saw a decrease of 0.14% month-over-month, while the female rate dropped by 0.0945%. Despite these declines, both genders remain on a two-month downward trend, yet the persistent higher female unemployment rate raises concerns about gender-specific labor market challenges.

The share of informal workers in the economy is showing an upward trend. Informal employment stands at 54.1%, around the 22nd percentile historically, and has risen by 0.0758% from the previous month. This upward trajectory over the last two months signals a potential shift towards a heavier reliance on informal labor, which often lacks job security and benefits, complicating the 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, 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 37 evaluation windows using the Dynamic Factor Model (DFM). Out-of-sample nowcast backtest over 37 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 — 73% worse than the benchmark, n=37); 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 August 2026 stands at 16.6%, reflecting a notable drop from the previous three months, signaling a shift in sentiment.
• By category, healthcare emerges as a key focus in the uncertainty narrative, but public security remains a growing concern.
• Compared with the officially published BBD index, our news-derived measure signals a divergence that merits attention.

Mexican news coverage of policy uncertainty in August 2026 stands at 16.6%, reflecting a notable drop from the previous three months, signaling a shift in sentiment. News-based policy uncertainty in August 2026 stands at 16.6% of articles tagged as policy-uncertain, a decrease from 19.8% just three months prior. This marks a slight uptick of 0.1% when looking back over the past year. The most recent month reveals a falling trend, suggesting a reduction in alarmist narratives within the media landscape, which could indicate a stabilizing political climate.

By category, healthcare emerges as a key focus in the uncertainty narrative, but public security remains a growing concern. Within the uncertainty narrative, the healthcare policy category has seen the most significant movement, rising by 0.4% over the past three months to reach 5.8%. Meanwhile, public security has seen a decline, now sitting at 1.7%, reflecting perhaps a momentary easing of tensions or media focus on other pressing issues. This shifting dynamic highlights the complex interplay of factors fueling public discourse around economic stability.

Compared with the officially published BBD index, our news-derived measure signals a divergence that merits attention. Against the Baker-Bloom-Davis benchmark, which reported a rise to 209.4 in July 2026, the news-derived index has been on a downward trend. This divergence suggests that while the media may be capturing a less anxious sentiment, external assessments of economic policy uncertainty are still responding to broader global challenges. Such contrasts could lead to differing interpretations of economic stability, which is crucial for stakeholders navigating the current landscape.

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 August 2026 SPF survey shows the aggregate Concern Index at 2.85, reflecting a rising tide of economic unease.
• Economists have identified public insecurity, US trade policy, and lack of structural change as the key growth constraints currently at play.
• The perceived probability of recession among surveyed economists stands at 37.5%, indicating heightened concerns in the current quarter.
• According to forecasters, the peso is seen as overvalued, with current-month misalignment at +0.114.

The August 2026 SPF survey shows the aggregate Concern Index at 2.85, reflecting a rising tide of economic unease. The August 2026 SPF survey shows the aggregate Concern Index at 2.85, placing it around the 64th percentile historically. This marks a modest rise of 0.06 from the previous month, indicating increased anxiety among economists. The uptick signals that despite recent improvements, underlying worries persist about economic stability and growth prospects.

Economists have identified public insecurity, US trade policy, and lack of structural change as the key growth constraints currently at play. The key constraints currently cited include public insecurity at 7.4%, US trade policy at 7.0%, and lack of structural change at 4.7%. Notably, public insecurity has seen the largest month-over-month decline, dropping by 3.03%. This shifting focus reflects the ongoing concerns about safety and governance impacting economic confidence.

The perceived probability of recession among surveyed economists stands at 37.5%, indicating heightened concerns in the current quarter. The perceived probability of recession is elevated, landing in the 91st percentile historically. This figure underscores a significant level of anxiety about the economic outlook compared to the previous quarter. For the upcoming quarter, the probability drops to a more moderate 20.0%, suggesting some room for optimism but still reflecting caution.

According to forecasters, the peso is seen as overvalued, with current-month misalignment at +0.114. FX expectations suggest that forecasters view the peso as overvalued, with a notable current-month misalignment of +0.114 indicating a weaker-than-expected peso. This overvaluation sentiment persists across future horizons, maintaining a consistent outlook for currency expectations. Such perceptions could complicate monetary policy decisions as Banxico navigates between growth stimulation and exchange rate stability.

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 2026-09-23 show the 10Y-3Y spread at 1.37%, indicating a modest deceleration compared to the prior observation.
• The curve shape suggests that markets are pricing in a modest likelihood of a rate cut, albeit with caution.

Bond prices as of 2026-09-23 show the 10Y-3Y spread at 1.37%, indicating a modest deceleration compared to the prior observation. The latest yield curve data reveals that the nominal and real spreads are behaving in a manner consistent with cautious optimism as Banxico approaches its decision. With the nominal spread now at 1.37% and the real spread at 0.90%, the curves indicate that while there is some easing in expectations, market participants remain vigilant about external pressures. The breakeven inflation spread implies that inflation expectations are relatively anchored, which is critical for shaping monetary policy decisions amid current uncertainties.

The curve shape suggests that markets are pricing in a modest likelihood of a rate cut, albeit with caution. However, there appears to be a disconnect between the optimism reflected in the yield curves and the more cautious tone expressed in recent Banxico meeting minutes. While the yield curve indicates potential for easing, the central bank's data-dependent approach and concerns over structural issues underscore the complexities facing policymakers. Thus, the expectation of a rate cut must be tempered with awareness of ongoing geopolitical tensions and domestic economic challenges.

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 September 2026 credit release shows money market spreads at significantly narrowed levels, reflecting cautious optimism amidst economic fluctuations.
• Household mortgage rates indicate a challenging landscape for borrowers, with the total annual cost averaging 13.8%.
• Debt issuance patterns show a robust shift towards fixed-rate financing, marking a strategic pivot for corporations in the current monetary landscape.

Banxico's September 2026 credit release shows money market spreads at significantly narrowed levels, reflecting cautious optimism amidst economic fluctuations. Following the latest September lending data, rate premia have tightened, with TIIE spreads now at 0.27 and 0.31 for the 28-day and 91-day rates, respectively, both notably lower than previous readings. The spread against the policy rate, currently at 0.204, underscores a narrowing trend, having decreased by 0.028 in the latest month. This suggests an easing of pressure in the funding environment, which could signal improved liquidity for the banking sector, although it remains to be seen how this will translate into lending practices.

Household mortgage rates indicate a challenging landscape for borrowers, with the total annual cost averaging 13.8%. The total annual cost of mortgages, which spans from a minimum of 10.7% to a maximum of 28.2%, illustrates the burden of financing amid a dynamic economic backdrop. Such rates reflect a substantial pass-through from the policy rate, raising concerns about affordability for prospective homeowners. This could constrain consumer spending and dampen overall economic activity if access to mortgage credit becomes increasingly difficult.

Debt issuance patterns show a robust shift towards fixed-rate financing, marking a strategic pivot for corporations in the current monetary landscape. Corporate financing mechanisms are evolving, with fixed-rate debt now comprising 19.58% of total issuance, in contrast to 10.67% for variable inflation-linked instruments. This shift indicates a preference for stability amid uncertain interest rate trajectories, as firms seek to mitigate refinancing risks. Such a trend may bolster financial resilience, although it also suggests a potential aversion to variable-rate exposure in a climate of rising global inflation concerns.

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.