Percentage point

A percentage point is a unit used to describe the difference between two percentages. It is commonly used in discussions about changes in interest rates, inflation rates, or other financial metrics.

For example, if an interest rate increases from 5% to 6%, it has increased by 1 percentage point. This means the difference between the two rates is 1 percentage point, not 1%.

This distinction is important because a “percentage point” refers to an absolute difference, while a “percentage” change (or percent change) refers to a relative change in proportion to the original value.

Example1:

Here’s an example to clarify:

If an interest rate rises from 5% to 6%, it has increased by 1 percentage point, but the percentage increase is:

((6 − 5)) / 5 ) × 100 = 20% increase. So, a percentage point is used to avoid confusion when talking about the actual difference in rates or percentages, while a percentage change measures the relative change.

Example 2:

If the interest rate decreased from 6.651% to 6.490%, the interest rate decreased by 6.651 - 6.490 = 0.161 percentage points.