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 August 2026 IMSS release shows unit labor costs at 3.13%, indicating that wages are currently outpacing productivity growth.
• Real wages in the formal sector remain positive, reflecting an improvement in purchasing power.
• Manufacturing and retail diverge significantly in their wage dynamics, with manufacturing outperforming retail in terms of real wage growth.

The August 2026 IMSS release shows unit labor costs at 3.13%, indicating that wages are currently outpacing productivity growth. Following August's formal sector wage data, ULC in manufacturing has risen, reaching the 77th percentile with a month-over-month increase of 1.18%. This suggests that while wages are increasing, productivity is not keeping pace, potentially signaling cost-push inflation pressures that could affect overall economic competitiveness.

Real wages in the formal sector remain positive, reflecting an improvement in purchasing power. With the latest growth rate at 2.80%, households are experiencing a modest increase in their real wages, albeit a decline compared to six months prior. This suggests that while purchasing power is currently bolstered, the trajectory over the medium term may warrant closer scrutiny as external economic pressures persist.

Manufacturing and retail diverge significantly in their wage dynamics, with manufacturing outperforming retail in terms of real wage growth. The manufacturing sector has reported a real wage growth of 2.80%, while retail has lagged with a more modest increase of 5.27%. This divergence underscores the varying impacts of economic conditions across sectors, with manufacturing potentially benefitting from stronger demand relative to retail, which faces its own set of challenges.

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 30 evaluation windows using the SARIMAX. Out-of-sample 12-period-ahead forecast 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% better than the benchmark, n=30); ULC Retail (RMSE 6.25 vs 6.39 naive — 2% better than the benchmark, n=28); Real Wage Manufacturing (RMSE 2.17 vs 2.55 naive — 15% better than the benchmark, n=30); 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 2026 shows unemployment at 2.82%, indicating a modest decline from the previous month.
• By gender, the divergence in unemployment rates presents an intriguing dynamic.
• The share of informal workers continues to present a complex picture of the labor market.

The latest ENOE survey for August 2026 shows unemployment at 2.82%, indicating a modest decline from the previous month. The August 2026 ENOE survey shows unemployment at 2.82%, around the 26th percentile historically. This represents a decrease of 0.0192% compared to July 2026, continuing a trend of stabilization after a prior increase over the past six months. While the unemployment rate remains below historical averages, the recent downward movement suggests a potential easing of labor market pressures, even as year-over-year comparisons indicate a rise of 0.144%.

By gender, the divergence in unemployment rates presents an intriguing dynamic. Male and female unemployment rates stand at 2.59% and 2.70%, respectively, reflecting a slight downward trend for both genders. However, the male unemployment rate has experienced a more pronounced decline of 0.171% over the past month compared to the 0.116% decrease for females, which may suggest a relative improvement in economic opportunities for males at this juncture, albeit with both rates remaining at the 16th percentile historically.

The share of informal workers continues to present a complex picture of the labor market. Informal employment currently accounts for 54.1% of the labor market, reflecting a slight increase of 0.09% from the previous month. This trend suggests a potential uptick in informal employment, raising concerns about labor market stability and the effectiveness of formal employment initiatives. The persistence of high informality levels may also indicate ongoing structural challenges within the economy that warrant closer attention.

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

• 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

• 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 2026-09-10 show the 10Y-3Y spread at 1.50%, reflecting a modest increase from the previous observation.
• The curve shape suggests that market participants are pricing in a potential easing of the policy rate, yet remain cautious about underlying economic vulnerabilities.

Bond prices as of 2026-09-10 show the 10Y-3Y spread at 1.50%, reflecting a modest increase from the previous observation. The latest yield curve data reveals a nominal 10Y-3Y spread of 1.50%, which has increased by 0.17% since the last observation. The real spread now sits at 0.80%, demonstrating a change of 0.24%, while the implied inflation spread has seen a slight decline of 0.07%. These figures indicate a market that remains cautiously optimistic regarding future inflation, as signaled by the breakeven inflation spread, which suggests expectations of subdued price increases in the medium term.

The curve shape suggests that market participants are pricing in a potential easing of the policy rate, yet remain cautious about underlying economic vulnerabilities. Markets appear to be pricing in a policy rate cut, as evidenced by the shape of the yield curve, which reflects a growing consensus for easing amidst declining inflation trends. However, this expectation may diverge from the cautious tone observed in recent Banxico communications, which emphasize a data-dependent approach amid ongoing global economic uncertainties. Investors must navigate this tension between a desire for monetary easing and the persistent structural challenges that could impede swift policy adjustments.

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 reflecting a notable tightening trend.
• The total annual cost of mortgages continues to reveal pressures on affordability.
• Corporate financing strategies are gradually shifting towards fixed-rate debt instruments.

Banxico's September 2026 credit release shows money market spreads reflecting a notable tightening trend. Following the latest September lending data, rate premia indicate that funding and TIIE spreads are currently at 0.24% and 0.28%, respectively, relative to the policy rate. This marks a narrowing of 0.0866% in the spread compared to the previous month, suggesting a shift in market sentiment towards more favorable borrowing conditions. The implications of this trend could signal an easing in financial constraints for borrowers, as lenders may become more competitive in response to the evolving economic landscape.

The total annual cost of mortgages continues to reveal pressures on affordability. Household mortgage rates indicate an average total annual cost (CAT) of 13.8%, with a range spanning from 10.7% to 28.2%. This marginal increase in the CAT highlights ongoing challenges in passing policy rate adjustments through to consumers, ultimately affecting affordability for potential homebuyers. The persistent high levels of the CAT may deter new mortgage applications, thereby cooling the housing market.

Corporate financing strategies are gradually shifting towards fixed-rate debt instruments. Debt issuance patterns show a significant preference for fixed-rate financing, which constitutes 19.94% of the total issuance relative to GDP. This inclination reflects a strategic move by firms to mitigate interest rate risks amidst uncertain economic conditions, contrasting with the 10.82% share of variable (inflation-linked) debt. Such a shift may enhance stability in corporate balance sheets but could also indicate cautious optimism regarding future 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.