Percentage point

A percentage point is the unit for the plain arithmetic difference between two percentages. If a rate moves from 4% to 6%, it has risen by two percentage points: you just subtract one number from the other. Percentage points measure the gap itself, not how large that gap is relative to where the rate started.

Why it exists

The same move from 4% to 6% can also be described as a rise of 50 percent, and both descriptions are correct. They just measure different things. The percentage-point figure states the absolute distance between the two rates; the 50 percent figure states how big that distance is compared with the starting value. Without a separate unit for the absolute gap, “rose by 2 percent” would be ambiguous: does it mean the rate moved to 4.08% (a 2 percent increase on 4%) or to 6% (a jump of 2 whole points)? Calling the first a percentage change and the second a percentage-point change removes that ambiguity, which matters whenever the numbers being compared are themselves percentages, such as interest rates, tax rates, inflation rates or vote shares.

Not to be confused with

Percent describes a proportion relative to a base — it always answers “relative to what?” A percentage point does not; it is a fixed-size unit, like a euro or a degree, that simply counts the distance between two percentage figures.

Basis points are the finer-grained sibling used in finance: one basis point equals one hundredth of a percentage point, so 100 basis points make one percentage point. Lenders and central banks favour basis points because rate changes are often too small to describe cleanly in whole percentage points.