Mexico | NAIRU estimates for Mexico

Summary

In order to better understand the impact of the labor market on Mexico's inflationary process over time, the Kalman filter methodology was used to estimate a rate of unemployment consistent with stable inflation or NAIRU.

Key points

• Key points:
• NAIRU estimates with annual headline inflation did not validate the negative relationship predicted by the accelerationist Phillips curve between the inflation differential and the unemployment gap (unemployment rate minus the NAIRU).
• Since the NAIRU is defined as the unemployment rate that keeps inflation stable or the inflation differential at zero, a visual inspection reveals that this rate has varied over time (between January 2005 and September 2025) between 2.6% and 5.3%.
• Estimates of the NAIRU obtained with annual services inflation show that it varies between 2.2% and 5.5% for this period. The results indicate that the unemployment gap has been marginally negative and close to zero since September 2024.
• This suggests that there do not appear to have been significant inflationary pressures in the services sector in recent months as a result of a slightly tight labor market.
• The unemployment gap (calculated with the NAIRU estimated by the Kalman filter) appears to be a relevant factor in the behavior of the average real wage growth of workers affiliated with the IMSS (Mexican Social Security Institute). However, this relationship breaks down starting in 2019.

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