PIH predicts income and consumption do not move together over time
consumers do not react to expected income, expenditure changes
Therefore, the PIH predicts that consumers will not react strongly to expected changes in income or expenditure, because they will adjust their consumption patterns based on their long-term income expectations, rather than short-term changes. For example, if a consumer expects a temporary increase in income, they may save the additional money rather than increase their spending, because they expect their income to return to its long-term average. Similarly, if a consumer expects a temporary increase in expenditure, they may cut back on their spending rather than dip into their savings, because they expect their expenditure to return to its long-term average.