The limitations of cost of living index number are as follows :
- One common cost of living index number cannot be constructed for all the classes of the society.
- It represents the average percentage changes in the cost of living expenditure of a class. Hence, it fails to study the changes in cost of living expenditure of an individual.
- Separate cost of living Index numbers are to be constructed according to different types of class of people in various regions.
- The index number constructed for a certain class of people cannot be used for the same class of people of another region.
- The expenditure of the same class of people depends on the size of the family, style of living, hobbies and habits. Hence, average family cannot be considered as a standard family.
- In its calculation, the assumption that ‘the expenditure of the base year remains constant’, is taken into account, that is not proper. Because with the passage of time, choice of people, their hobbies and habits are changed. Hence, at regular interval of time with the help of family budget Inquiry necessary changes should be made.
- The people of the same class may have different levels of consumption for items. Hence, problem arises in assigning the weights to different items.