You can't compare consoles to other stuff. That's my main point. Of course inflation matters. But it's irrevelant when it comes to consoles and general gaming.

Consoles have almost one and only purpose, which is gaming, and peoples doesn't want to spend more than 400$ just for gaming, because the games are already expensive enough (+game as a service stuffs). If the minimum you can get is 500$ + 60$ for one and only (AAA) game, that's way too much.

Remember, it's only for gaming. Not other purposes. You can access Hulu, Netflix, Prime Video and stuff on other devices almost everyone own.

Why AAA games doesn't cost 80-100$ then ? Because publishers know people won't buy it

I call bullshi+ on that.

Of course you can (and should) compare the costs of console gaming to the costs of other forms of entertainment. You can compare it to the costs of PC gaming, mobile gaming, yearly/monthly/hourly costs of going to the cinema or theatre, costs of access to movies and TV-shows at home, costs for other hobbies like photography, pimping your ride, collecting stuff, skiing trips, other vacations, etc.

Console gaming ain't in a bubble. A big (and still growing) part of popular smartphones and tablets is the entertainment sector... otherwise almost nobody would need the flagship models when even the $100 devices can handle all the basic functionalities of their much more expensive brothers.

Of course everyone has preferences in his/her entertainment spendings, but even if many people set themselves an arbitrary limit for the price of a console, most of them will at least unconsciously compare the value with similar forms of their entertainment and with the added value to the predecessor console (f.e.: "only 1/x loading times, only double the price. This time I don't even have to buy a handful launch titles at full price, there are a lot of great PS4 titles for $10-$20 I haven't played yet, all improved on the PS5")

N64 games have costed that much before, and modern games + DLC or season pass are there or above these values already. It might not happen the next year, but medium term the prices will rise to $70 - 80 with almost certainty.

Consumers: Everything else has gotten more expensive, but we will riot if game consoles and video games become more expensive!

Companies: Well everyone, looks like we have to cut some people from their jobs because we didn't sell ludicrous numbers that we need to make a profit off our game because the consumers don't understand inflation, good luck on your future endeavors!

Consumers: Why did you fire those poor people? We riot!

Companies: Ok, Ok! We won't fire anymore! We will release DLC after games to make up for the lost profit on ya'll not understanding inflation. Sound fair?

Consumers: No! NO DLC! That just means you didn't put in enough effort into the game in the first place! We will only buy game of the year editions at 87% off on Steam sale now! Take that you capitalist pigs!

Companies: Uh...

I would pay 500 but I doubt most parents would want to pay that for a console for their kids.

$400 is the right price at launch for the entry level version. If that model is offered, and it will do the majority of sales, nothing wrong about offering a premium model too at $500 or even more. But a $500 version alone wouldn't sell enough.

AFAIK both the X360's and the PS3's more expensive models sold better than their cheaper counterparts, though.

Tagging

I did justify the reason at least 3 times, you don't wanna read it, fine, but that's not my fault.
Your only argument is "inflation" and nothing else. Well, guess what, people don't give a bread about how consoles cost 20 years ago. Parents won't buy a 500$ device for their kids which only does gaming (which they already consider to be bad for kids anyway).

But yeah, go to every wallmart you can see when the 500$-Nex gen consoles are released and show them your charts, I'm sure they will convince them