conducted by the Pakistan Bureau of Statistics (PBS) every alternate year that collects item-wise data on household expenditures. The latest data available is for 2018-19, which provides a baseline of spending levels and patterns.

**<mark>Obtaining the non-housing consumption aggregate.</mark>** <mark>The residual (non-housing) expenditure aggregate is obtained using aggregate consumption expenditures</mark><sup>21</sup> <mark>obtained from the HIES. The dataset categorizes expenditures by type, including housing expenses, food, and other (non-housing) non-food spending. By construction, the REM allows for an estimate of residual (non-housing) expenditures in a direct manner by summing individual summing reported expenditures on non-housing items. This contrasts with the RIM, in which residual income is estimated by excluding housing costs from total income.</mark>

The non-housing consumption aggregate for Pakistan has three main components, including: (i) the <mark>aggregate nominal non-housing consumption expenditure, which consists of all non-housing related expenditures (food and non-food) of the household converted into the same time unit, for instance annual, monthly or weekly expenditures; (ii) a spatial price index, which adjusts for the cost of living differences across space or regions; and (iii) an equivalence scale, which adjusts for differences in household size and age composition across households.</mark> The residual consumption aggregate includes all food and non-food expenditures, that are not related to housing, and are incurred on a recurrent basis. This includes both cash and in-kind expenditures for items directly purchased in the market, received as wages or salaries, or received as gifts or assistance. In the case of Pakistan, the key non-food, non-housing items included in the residual consumption aggregate include expenditures on clothing, footwear, education, health, fuel, transport, recreation, and communication. Housing expenditures, which are not part of the aggregate, include rental payments (actual and imputed), as well as electricity, water, maintenance, other fuels, and waste collection.

Expenditures on durable goods are not included in the consumption aggregate, due to data limitations in obtaining the flow of utilities from durable consumption items like furniture and furnishings, electronics, and assets such as cars, refrigerators, and motorcycles. Spending on lump sum taxes, insurance payments and license fees are also excluded from the expenditure aggregate. Moreover, infrequent and lumpy expenditures on occasions like births, deaths, weddings and funerals are also excluded, because these may overstate the welfare levels of households in the reference period.

Before aggregating, expenditures are converted to the single time unit of a month. This requires a decision on how fortnightly expenditures are treated. In Pakistan fortnightly expenditures are taken to represent purchases made over a 14-day period and are therefore multiplied by a factor of 2.17.

In addition, differences in the cost of food and fuel items across the country are accounted for by using a spatial price index. In large countries where regions are diverse and at varying levels of development, these spatial price differences can be substantial. In Pakistan, the spatial price index uses a Paasche formula and is estimated at the level of a primary sampling unit (PSU).<sup>22</sup> This PSU-level Paasche index is

> 21 In most developing country contexts, consumption expenditure is used as a marker for welfare.

> 22 The spatial price deflator only uses food and fuel items for two reasons: (i) unit values or implicit prices (spent/quantity) cannot be constructed for other non-food items, and (ii) quality is likely to be more heterogenous for other non-food items, meaning that it is difficult to ensure that we are comparing the same goods across regions.

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