Question

Explain four limitations of consumer price index numbers.

Answer 1

The limitations of consumer price index numbers are as follows:

(i) Errors may occur in the construction because of an inaccurate specification of groups for whom the index is meant.

(ii) Faulty selection of representative commodities resulting out of unscientific family budget enquiries.

(iii) Inadequate and unrepresentative nature of price quotations and use of inaccurate weights.

(iv) Frequent changes in demand and prices of the commodity. The average family might not be always a representative one.