Limitations of an Index Number

For all their usefulness, index numbers are not perfect measures, and their limitations should be kept in mind when interpreting them. Since they are built from samples of commodities rather than every item in the economy, errors can creep in during the analysis and selection process. The commodities included may not reflect current trends, which can skew the resulting picture. Because multiple methods exist for constructing the same index — Laspeyres, Paasche, Fisher, and others — different methods can produce different values for what is meant to be the same underlying change, which can cause confusion. Finally, since the representative commodities thems …