Limitations of Index Numbers
- They are simply rough indications of the relative changes.
- The choice of representative commodities may lead to fallacious conclusions as they are based on samples.
- There may be errors in the choice of base periods or weights, etc.
- Comparisons of changes in variables over long periods are not reliable.
- They may be useful for one purpose but not for another.
- They are specialized types of averages and hence are subject to all those limitations which an average suffers from.