Percent vs percentage points.

The most important percentage distinction

This is the single concept that causes the most confusion in journalism, business, and politics. The distinction:

• Percentage points measure the absolute difference between two percentages.
• Percent change measures the relative difference between two values.

If a candidate’s poll number rises from 40% to 44%, that’s:

• A 4 percentage point increase (44 − 40 = 4)
• A 10% relative increase (4 ÷ 40 × 100 = 10)

Both statements are true. They describe the same change. They’re not interchangeable.

Why this matters in news headlines

A headline saying “Mortgage rates rose 50% this year” tells a very different story depending on which is meant:

• If rates went from 5% to 7.5%, that’s a 50% relative increase (2.5 ÷ 5) and a 2.5 percentage point increase.
• If rates went from 5% to 55%, that’s a 50 percentage point increase (apocalyptic).

Responsible journalism specifies which. Sensationalist coverage often confuses the two.

The interest rate example

Central banks often raise rates by 0.25 percentage points (a “quarter point”). If a bank’s rate moves from 4% to 4.25%, the news might say “rates rose 25 basis points” (1 basis point = 0.01 percentage points). They almost never say “rates rose 6.25%”, which would also be technically true (0.25 ÷ 4) but misleading.

The unemployment example

If unemployment falls from 5% to 4%:

• 1 percentage point decrease
• 20% relative decrease (1 ÷ 5 × 100)

Newspapers writing “unemployment fell 20%” are technically describing the relative change. Readers usually interpret it as a 20 percentage point change. Saying “unemployment fell one percentage point” or “unemployment fell from 5% to 4%” avoids the ambiguity.

When you should use each

Use percentage points when

• Both numbers are themselves already percentages (poll numbers, market share, tax rates, interest rates)
• You want to express the absolute size of a change
• You’re comparing across contexts (a 2pp change from 5% means something different than a 2pp change from 50%)

Use percent change when

• The values represent quantities, not rates (revenue, traffic, weight)
• You want to express relative magnitude
• You’re comparing growth across different scales

Basis points: the third option

Finance pros use basis points (bps) to avoid all ambiguity. One basis point = 0.01 percentage points. So:

• A rate moving from 4.00% to 4.25% = 25 basis points
• A rate moving from 4.00% to 5.00% = 100 basis points

Basis points are by definition absolute, which removes the percent-vs-percentage-points confusion. If you read “Fed raises rates 50 bps”, you know exactly what it means.