Question

Discuss the limitations of the Consumer Price index. (Brief answer please)

Answer 1

the limitations of the Consumer Price index:

1) CPI or Consumer price index only measures the change in the prices of a basket of the goods on weighted average levels while there are many more goods in the economy which are part of consumption, so it might not reflect the true change in the price levels in the economy.

2) CPI is based on the buying patterns of the urban customers not the rural, so it undermines the impact of CPI on the rural consumers.

3) CPI only measures the change in prices not the quality changes of the goods purchased.

the above is the answer