Understanding Mexico's economic landscape via data transformations

Key Takeaways

• The recent update from the SHF House Price Index reveals significant insights into the state of the housing market, particularly with the new observation of 8.71% YoY inflation as of 2026-01-01.
• The DFM nowcast provides valuable context, estimating house price inflation at 8.65% YoY as of 2026-05-01.

The recent update from the SHF House Price Index reveals significant insights into the state of the housing market, particularly with the new observation of 8.71% YoY inflation as of 2026-01-01. This level of house price inflation exceeds historical averages, positioning itself in the 75th percentile since 2006. In comparison, headline CPI inflation stands at 3.94% while housing CPI inflation is at 3.61%, suggesting that house prices are rising notably faster than general inflation metrics. This divergence reflects the ongoing demand pressures in the housing sector, despite a slight decline of 0.21 percentage points from the previous quarter.

The DFM nowcast provides valuable context, estimating house price inflation at 8.65% YoY as of 2026-05-01. This nowcast aligns closely with the latest observed value, indicating that auxiliary indicators such as mortgage lending and housing CPI are confirming the current trajectory rather than suggesting any significant upward or downward pressure. The model's consistency with observed data suggests that the dynamics within the housing market remain robust and supportive of sustained inflationary trends.

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

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

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

Key Takeaways

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

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

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

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

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

Key Takeaways

• The July 2026 IMSS release shows unit labor costs at 3.13%, indicating rising costs as wages outpace productivity.
• Real wages in the formal sector have shown positive growth, suggesting an improvement in purchasing power for workers.
• Across sectors, manufacturing and retail diverge significantly in terms of unit labor costs, with manufacturing under pressure while retail remains softer.

The July 2026 IMSS release shows unit labor costs at 3.13%, indicating rising costs as wages outpace productivity. Following July's formal sector wage data, ULC in manufacturing is climbing, reflecting a labor market where wages are growing faster than productivity. At the 77th percentile, this month’s increase of 1.18% signals potential upward pressure on inflation and could challenge competitiveness in the sector. Manufacturers will need to keep a close eye on these trends as they navigate cost structures in a shifting economic landscape.

Real wages in the formal sector have shown positive growth, suggesting an improvement in purchasing power for workers. At 5.27%, real wages indicate that households are experiencing gains, which is a positive development amidst broader economic uncertainties. Despite a slight month-over-month decline of 0.84%, real wage growth over the last six months points to a solid trajectory, enhancing the purchasing power of formal sector workers. This boost in real wages could lead to increased consumer spending, further invigorating the economy.

Across sectors, manufacturing and retail diverge significantly in terms of unit labor costs, with manufacturing under pressure while retail remains softer. While manufacturing ULC is rising, retail ULC is in negative territory at -2.17%, reflecting a stark contrast and indicating that retail workers are not benefiting from the same wage dynamics. This divergence suggests that while manufacturing may face cost challenges, retail could be navigating a more subdued environment, which could influence hiring and investment decisions in the sector. Stakeholders should monitor these trends closely as they may impact broader economic recovery strategies.

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 30 evaluation windows using the SARIMAX. Out-of-sample backtest over 30 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 2.82 vs 3.03 naive, +7% improvement, n=30); ULC Retail (RMSE 6.25 vs 6.39 naive, +2% improvement, n=28); Real Wage Manufacturing (RMSE 2.17 vs 2.55 naive, +15% improvement, n=30); Real Wage Retail (RMSE 2.99 vs 2.89 naive, n=28).

Key Takeaways

• The latest ENOE survey for June 2026 shows unemployment at 2.39%, marking a slight increase from the previous month and highlighting a modest upward trend.
• By gender, male and female unemployment rates exhibit notable dynamics, with a slight divergence in trends.
• The share of informal workers continues to be a point of concern, suggesting underlying vulnerabilities in the labor market.

The latest ENOE survey for June 2026 shows unemployment at 2.39%, marking a slight increase from the previous month and highlighting a modest upward trend. The June 2026 ENOE survey shows unemployment at 2.39%, around the 7th percentile historically. This reflects a rise of 0.0183% compared to May, continuing a two-month upward streak. Although this increase is marginal, it underscores a growing concern among market participants regarding the labor market's stability in the face of broader economic uncertainties.

By gender, male and female unemployment rates exhibit notable dynamics, with a slight divergence in trends. Male unemployment stands at 3.31%, having decreased by 0.0252%, while female unemployment is slightly higher at 3.48%, reflecting a reduction of 0.0388%. This divergence indicates that while both genders have experienced improvements, female unemployment remains elevated, raising concerns about gender disparities in labor market recovery.

The share of informal workers continues to be a point of concern, suggesting underlying vulnerabilities in the labor market. Informal employment currently accounts for 55.7%, which is near the 96th percentile historically and has seen a recent increase of 0.129%. This upward trend signals a persistent reliance on informal work structures, which may hinder overall economic stability and complicate efforts to enhance labor market conditions.

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 21 evaluation windows using the Dynamic Factor Model (DFM). Out-of-sample backtest over 21 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 21.64 vs 0.13 naive, n=18); 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

• Secondary sector productivity is on the rise, signaling a positive shift in economic activity.
• Diving deeper into manufacturing, the composite indices reveal mixed signals that could raise concerns about sustainability.
• Within manufacturing, the standout performers are the computer and electronic equipment subsector, while food manufacturing lags behind.

Secondary sector productivity is on the rise, signaling a positive shift in economic activity. INEGI's Q2 2026 productivity release shows secondary sector output at 102, reflecting an upward trend driven primarily by construction and manufacturing. This growth is broad-based, particularly fueled by a robust performance in construction, which continues to leverage strong demand. In contrast, mining remains relatively stagnant, highlighting a divergence within the sector as overall productivity improves.

Diving deeper into manufacturing, the composite indices reveal mixed signals that could raise concerns about sustainability. Manufacturing composites show productivity at 0.281, with sales rising to 0.61 while inventory and labor demand remain weak at -0.034 and -1.49, respectively. The contrast between rising sales and declining labor demand signals potential inefficiencies, suggesting that while revenue may be increasing, the underlying structural factors could be less stable. This divergence calls for caution as it may impact future growth prospects.

Within manufacturing, the standout performers are the computer and electronic equipment subsector, while food manufacturing lags behind. The top-performing subsectors, particularly computer and electronic equipment, have soared to a record high of 131, boosting overall manufacturing productivity significantly. In contrast, the food subsector has struggled, reflecting broader challenges in the sector. Given that manufacturing constitutes over 66% of the secondary sector, these dynamics are crucial for understanding the overall economic landscape.

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

• News-based policy uncertainty in July 2026 stands at 18.34% of articles tagged policy-uncertain.
• By category, the latest data indicates that trade policy is the most significant driver of recent uncertainty.
• Compared with the officially published BBD index, the news-derived measure shows a similar downward trajectory.

News-based policy uncertainty in July 2026 stands at 18.34% of articles tagged policy-uncertain. Mexican news coverage of policy uncertainty reveals a significant level, with 18.34% of articles reflecting this theme, marking a decline from the previous three-month average of 20.0%. Over the past year, however, this metric has risen by 2.9%, indicating a persistent elevation in concerns surrounding economic policy. The most recent month shows a modest decline of 1.7%, suggesting a slight easing in the immediate perception of uncertainty.

By category, the latest data indicates that trade policy is the most significant driver of recent uncertainty. Within the uncertainty narrative, trade policy has emerged as the single largest mover over the last three months, increasing by 2.1 percentage points to 9.43%. Additionally, the labor market and regulation categories have also contributed to the composition of uncertainty coverage, albeit to a lesser extent. This highlights a growing concern among stakeholders regarding the implications of trade dynamics on economic stability.

Compared with the officially published BBD index, the news-derived measure shows a similar downward trajectory. Against the Baker-Bloom-Davis benchmark, which reported a reading of 149.8 for June 2026, both indices reflect a notable decline in policy uncertainty over the past three months. The alignment of these measures reinforces the narrative that while concerns persist, there is a trend towards reduced uncertainty in the short term. This convergence may provide policymakers with a more favorable context for decision-making in the coming months.

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 July 2026 SPF survey shows the aggregate Concern Index at 2.79, around the 60th percentile, marking a modest decline from the previous month.
• Economists have identified public insecurity as the top growth constraint, accounting for over 10% of concerns.
• The perceived probability of recession among surveyed economists stands at 25.0%, indicating a moderate level of concern relative to historical norms.
• According to forecasters, there is a notable misalignment in FX expectations, indicating that the peso is viewed as overvalued.

The July 2026 SPF survey shows the aggregate Concern Index at 2.79, around the 60th percentile, marking a modest decline from the previous month. The July 2026 SPF survey shows the aggregate Concern Index at 2.79, around the 60th percentile. This index is falling, down by 0.04 from the previous month. With the index on a three-month downward streak, it underscores a growing caution among economists about the economic landscape, even as the year-over-year change indicates a notable uptick of 0.48.

Economists have identified public insecurity as the top growth constraint, accounting for over 10% of concerns. The key constraints currently cited include public insecurity (10.4%), US trade policy (7.6%), and a lack of structural change (4.4%). The most significant mover this month is public insecurity, which has risen by 1.20% month-over-month, reflecting heightened worries about safety and stability that could weigh heavily on economic performance.

The perceived probability of recession among surveyed economists stands at 25.0%, indicating a moderate level of concern relative to historical norms. Recession concerns among surveyed economists are moderate, with an Anxious Index of 25.0% compared to the previous quarter. This places it in the 76th percentile historically, signifying that while apprehensions exist, they are not alarmingly high. The outlook for the next quarter appears slightly better, with a projected probability of 20.2%, suggesting a cautious optimism moving forward.

According to forecasters, there is a notable misalignment in FX expectations, indicating that the peso is viewed as overvalued. FX expectations suggest that forecasters see the peso as overvalued by 0.039 in the current month. This perspective is consistent across time horizons, with expectations of a weaker peso extending into the next two months. Such sustained misalignment could affect trade dynamics and monetary policy considerations.

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 2026-08-21 show the 10Y-3Y spread at 1.42%, reflecting a nominal spread that has nudged up by 0.12% since the last observation.
• The curve shape suggests that markets are pricing in a significant probability of a rate cut from Banxico, aligning with a 75% likelihood of a 31bp reduction in the upcoming meeting.

Bond prices as of 2026-08-21 show the 10Y-3Y spread at 1.42%, reflecting a nominal spread that has nudged up by 0.12% since the last observation. The latest yield curve data reveals that while the nominal spread has seen a notable uptick, the real spread's increase signals that investors are starting to factor in a more optimistic outlook for economic growth. However, the implied inflation spread's relative stability suggests that inflation fears are not entirely vanishing, keeping a watchful eye on the overall economic landscape. The lack of inversion in the nominal spread since 2006 further emphasizes the market's confidence in sustained growth without immediate recession fears, at least for now.

The curve shape suggests that markets are pricing in a significant probability of a rate cut from Banxico, aligning with a 75% likelihood of a 31bp reduction in the upcoming meeting. Markets appear to be pricing in an optimistic scenario of rate cuts and a more favorable economic outlook, yet the central bank's emphasis on external factors and structural challenges signals that we might not see the swift action the markets are banking on. Investors should remain vigilant, as the ongoing geopolitical tensions and domestic security issues could complicate Banxico's decision-making process, potentially leading to a less aggressive policy stance than current market sentiment suggests.

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 August 2026 credit release shows money market spreads tightening as funding costs adjust.
• Household mortgage rates remain a concern for borrowers navigating the current economic landscape.
• Debt issuance patterns show a clear preference for fixed-rate financing among firms navigating turbulent markets.

Banxico's August 2026 credit release shows money market spreads tightening as funding costs adjust. Following the latest August data, rate premia stand at 0.19%, reflecting a narrowing trend that has seen spreads tighten by 0.0583 since last month. This tightening indicates a more favorable borrowing environment, which could support lending activity despite ongoing economic uncertainty. The decreased spreads suggest that the market is adjusting to the potential for a rate cut from Banxico, as expectations shift amid fluctuating inflation and geopolitical concerns.

Household mortgage rates remain a concern for borrowers navigating the current economic landscape. The total annual cost of mortgages (CAT) averages 13.8%, with a range from 10.7% to 28.2%. As the policy rate remains a focal point for lending, the relatively high CAT suggests that affordability continues to be a challenge for many households, particularly as they brace for potential changes in interest rates. This situation underscores the importance of examining how effectively policy adjustments are being transmitted to consumers.

Debt issuance patterns show a clear preference for fixed-rate financing among firms navigating turbulent markets. Currently, fixed-rate instruments comprise 19.47% of corporate debt issuance, while variable rates account for about 19.82%. This shift towards fixed-rate debt reflects a growing caution among firms, as they seek to lock in stability amidst rising economic uncertainties and potential rate cuts. The continued reliance on fixed rates indicates a strategic move to mitigate risks associated with fluctuating interest rates.

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.