Percentage Points vs. Percent Change Guide

A frequent source of confusion in economics, finance, and statistics is the difference between a percentage point and a percentage change.

Key Differences

• Percentage Point ($\Delta pp$): The simple arithmetic difference between two percentages: $\Delta pp = P_2 - P_1$
• Basis Points ($\Delta bps$): One percentage point equals 100 basis points: $\Delta bps = (P_2 - P_1) \times 100$
• Relative Percentage Change (%): The proportional rate of change relative to the initial percentage: $\text{Relative Change} = \frac{P_2 - P_1}{|P_1|} \times 100\%$

Practical Example

If a central bank raises the interest rate from 4.0% to 5.0%:

• It is a 1.0 percentage point (100 bps) increase.
• It is a 25% relative increase ($\frac{5 - 4}{4} \times 100 = 25\%$).