With this large price difference they are betting on a larger digital only share which will shrink the physical disk market.
You have at least 30% of the price from Retail as their Margin. That is covering wholesale, logistics, operation, shipping etc. By going Digital they could keep some of those 30% for themselves. Hence why the Digital Version of the Console is Cheaper, it is subsidised.
Game Development cost is at all time high. Despite having much better Engine and Tooling. Gamers demand better graphics, physics, sound etc.
And then people also expect the console price to be same.
The only thing that has helped was the increasing number of Gamers.
Sony has previously been quite clear and vocal about not killing the Retail market. Especially considering the Japanese value physical properties and still prefer to buy Disc whenever possible. So I am sure it isn't their intention to try and kill Retail, more likely being forced to do so by the market.
I realize it's very possible publishers will continue to expand the use of microtransactions anyway, but, well, at least now they'll have the ability to not do that. Before, it was basically a lost cause.
Also... game prices drop so quickly that if you're actually budget-constrained, there's a pretty easy solution, which is to buy everything on a ~3 year delay. This will of course likely require getting the version of the PS5 with a disc drive, which everyone should do, for exactly this reason.
(Note also here that $60 now is not equal to $60 fifteen years ago, due to inflation.)
It was very much possible before too, just look at what the indie scene is capable of at much lower prices.
Source?