<mark>consumption aggregate has three main components: (i) The Aggregate Nominal Consumption Expenditure: which includes all food and non-food expenditures of the household converted into the same time unit, for instance annual, monthly or weekly expenditures, (ii) The Cost of Living Index (COLI): a price index used to adjust for the cost of living differences across space and time, and (iii) The Equivalence Scale: to adjust for differences in the size and age composition of households.</mark>

#  Aggregate Nominal Consumption Expenditure

The consumption aggregate includes all food and non-food expenditures that are incurred on a recurrent basis, converted to annual expenditures. NISR elicits both cash and in-kind expenditures for food items directly purchased in the market, self-produced and consumed, received as wages or salaries, or received as gifts or assistance. The monetary value of all these expenditures is converted to a common time unit (year) and then aggregated to arrive at total consumption expenditure. Prior to aggregation, outliers in consumption are removed using region-level mean and standard deviation. In that, all observations that are 3.5-standard deviations above the mean are considered outliers and are replaced by the ‘mean’ value. These ‘adjusted’ values are then used to arrive at final annual consumption expenditure (NISR 2015).

The key non-food items included in the consumption aggregate include expenditures on clothing, footwear, housing, education, health, fuel, utilities, transport, recreation, and communication. Payments received by employees in kind and subsidized housing benefits are also included. Another important component of nonfood expenditures is house rent, where the actual rent for renters and self-reported rent for owners is included. Lastly, estimated consumption flows derived from durable goods (based on their current value and rate of depreciation) is added to the consumption aggregate (NISR 2015).

#  Cost of Living Index

As the cost of basic food and non-food needs varies across regions within a country, the aggregate nominal expenditure needs to be adjusted for spatial price differences. Moreover, temporal price adjustments need to be done to account for seasonality of consumption and price variation within survey months. A common way to do this is to construct a cost of living index (COLI). COLI is a numeric factor which describes price deviations over the survey period across regions from national average prices of a ‘selected’ basket of goods as recorded in the ‘base month’. NISR uses January as the base month for welfare estimation, thus EICV3 adjusts all expenditures to January 2001 prices, and EICV4 uses January 2014 prices as reference.

The Rwandan COLI can best be described as a poor’s price index. This means that the index is based on a selected ‘basket’ of food and non-food items according to their relative weight in the budget share of the poorest households.<sup>3</sup> To adjust the nominal consumption aggregate in EICV3, NISR uses the consumption patterns of the bottom 60 percent of the households. In EICV4, the choice is restricted to the bottom 40 percent of households. This is because the poverty headcount was estimated at 45 percent in EICV3, and being a poor price index, COLI was restricted to households strictly below the poverty threshold. The final

> 3 The availability of price data throughout the survey period is also a factor in the determination of the goods that make it into the COLI basket.

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