Understanding Mexico's economic landscape via data transformations

Key Takeaways

• The latest SHF House Price Index for Q3 2025 reveals a YoY inflation rate of 8.86%, which is about as spicy as a taco on a hot summer day.
• Now, let’s unravel the mystery of the DFM nowcast, which brings some intriguing twists to our house price saga.
• Housing is a major household asset and a key store of wealth.

The latest SHF House Price Index for Q3 2025 reveals a YoY inflation rate of 8.86%, which is about as spicy as a taco on a hot summer day. This inflation rate, reported on July 1, 2025, is comfortably above the historical average, strutting in at the 79th percentile since 2006. In the same breath, house price inflation is outpacing both the headline CPI at 3.69% and the housing CPI at 3.35%, creating a premium of over 5 percentage points in each case. Meanwhile, the DFM nowcast suggests a slight divergence from this observed rate, but let's not throw a piñata just yet; we’ll dig into that shortly.

Now, let’s unravel the mystery of the DFM nowcast, which brings some intriguing twists to our house price saga. The DFM nowcast, standing at 7.29% as of January 1, 2026, is lower than the observed 8.86%, indicating that the model detects downward pressure from auxiliary indicators like mortgage lending and CPI housing. This suggests that while house prices have been on a rollercoaster of inflation, the underlying trend is showing signs of mean reversion or cooling off, which could have implications for those still clinging to the idea of a housing bonanza. In short, the DFM is waving a caution flag, reminding us that even the hottest markets can cool down faster than a soggy tortilla.

Housing is a major household asset and a key store of wealth. Rising prices can lift balance sheets and collateral values, while falling prices can weaken credit conditions and confidence. Housing costs also shape the cost of living and affordability, making house price inflation relevant for both growth and distributional pressures in Mexico.

Key Takeaways

• Brent oil prices through December 2025 reveal a disconcerting tale, settling at $61.81, a staggering 15.6% decline year-over-year.
• Copper, on the other hand, shines like a beacon, currently priced at $11,790.96 and boasting a robust 32.3% increase over the past year.
• Corn prices are on a modest ascent, currently at $205.32, with a year-over-year rise of 1.2%.
• Commodity prices feed directly into Mexico's inflation pulse and terms of trade.

Brent oil prices through December 2025 reveal a disconcerting tale, settling at $61.81, a staggering 15.6% decline year-over-year. Brent oil prices through December 2025 reveal a disconcerting tale, settling at $61.81, a staggering 15.6% decline year-over-year. This downward trajectory, exacerbated by global supply chain disruptions and fluctuating demand, has cast a pall over Mexico's federal revenues, which hinge significantly on oil exports. With a three-day streak of decline, the implications for Pemex and the Campeche regional economy are as clear as a foggy morning: uncertainty looms large.

Copper, on the other hand, shines like a beacon, currently priced at $11,790.96 and boasting a robust 32.3% increase over the past year. Copper, on the other hand, shines like a beacon, currently priced at $11,790.96 and boasting a robust 32.3% increase over the past year. This metal's recent upward momentum—evident in a 9.1% monthly increase—reflects a burgeoning demand from the tech sector and a resurgence in global infrastructure projects. For Mexico's mining sector, particularly in Sonora, this trend offers a silver lining amidst the otherwise turbulent commodity seas.

Corn prices are on a modest ascent, currently at $205.32, with a year-over-year rise of 1.2%. Corn prices are on a modest ascent, currently at $205.32, with a year-over-year rise of 1.2%. This gentle rise, marked by a 1.8% increase in the last month, paints a picture of stability in an otherwise volatile agricultural landscape. For Mexico's 1.5 million smallholder farmers, this incremental growth brings hope, but the specter of food price inflation still lurks in the shadows.

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%, indicating that wages are currently outpacing productivity growth.
• Real wages in the formal sector have seen a positive shift, indicating an improvement in purchasing power for workers.
• Across sectors, a significant divergence is observed in real wage dynamics, with manufacturing lagging behind retail.

The January 2026 IMSS release shows unit labor costs at 2.27%, indicating that wages are currently outpacing productivity growth. Following January's formal sector wage data, ULC in manufacturing is rising, reflecting a scenario where wage increases are surpassing productivity gains. This month's ULC is positioned at the 62nd percentile, with a month-over-month decline of -0.49%. The implications are clear: as labor costs rise faster than output, we may be witnessing the emergence of cost-push inflation pressures that could challenge competitiveness in the sector.

Real wages in the formal sector have seen a positive shift, indicating an improvement in purchasing power for workers. With the latest real wage growth recorded at 2.27%, households are experiencing a tangible increase in their purchasing power. However, it is noteworthy that this growth has not been without challenges, as the year-over-year change reflects a decline of -4.75%. Despite these fluctuations, the current trajectory suggests a favorable environment for consumer spending, which may bolster economic activity.

Across sectors, a significant divergence is observed in real wage dynamics, with manufacturing lagging behind retail. While manufacturing real wages stand at 2.27%, retail has outperformed with a growth rate of 3.10%. This disparity highlights the contrasting pressures faced by the sectors, where manufacturing grapples with rising labor costs, potentially impacting its competitive edge, while retail benefits from a relatively stronger wage performance, enhancing consumer capacity in that segment.

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 at a narrowing 0.194, signaling a cautious shift in lending dynamics.
• The total annual cost of mortgages reflects a slight easing, with an average CAT of 13.9%.
• Debt issuance patterns show a significant preference for fixed-rate instruments, indicating a strategic pivot in corporate financing.

Banxico's March 2026 credit release shows money market spreads at a narrowing 0.194, signaling a cautious shift in lending dynamics. Following the latest March lending data, rate premia are tightening, with the current spread reflecting a -0.0132 change from the previous month. This downward trend indicates that borrowing costs are becoming slightly more favorable for borrowers, as spreads have contracted significantly over the past three months. The narrowing spreads suggest that market participants might anticipate a more accommodative stance from Banxico, potentially easing the cost of capital amid ongoing uncertainties.

The total annual cost of mortgages reflects a slight easing, with an average CAT of 13.9%. Household mortgage rates continue to show a competitive landscape, with the average CAT at 13.9% and a range between 11.1% to 28.2%. This compression in mortgage costs could enhance affordability for potential buyers, but the overall impact will depend on how well these rates pass through to consumers in the context of the current economic climate and policy decisions.

Debt issuance patterns show a significant preference for fixed-rate instruments, indicating a strategic pivot in corporate financing. With fixed-rate debt making up 18.74% of the total issuance, companies are leaning towards stability in their financing amid a volatile economic backdrop. This shift highlights a growing caution among firms, favoring predictable payments over the potential risks associated with variable-rate instruments, as they navigate an environment fraught with uncertainty.

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.