For many people a phone is just a tool and not a prestige ego symbol. This is what the SE was perfect for.
Now, what used to be the SE, has been positioned as a value version of the mainstream iPhones. Compared to them fair priced, but possibly out of reach to the consumer on a budget. People face recession, stagnating incomes, higher energy prices and such. The lower end market might not be able to digest this price increase. However, as the mainstream shoppers face the same problems, the former Apple main product customers might downgrade to the 16e and find good bang for their buck. This is why for Apple it might still work financially.
I think Apple needs to cover the low end of the market as well, to ensure the iPhone will remain truly mainstream. Think children, parents, older people. Maybe something below is planned? It must be so easy to just relaunch last year's phones?