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.