It's no different than the processor, RAM, and screen improvements being made without a price increase.
I agree. Storage is becoming even more cheap nowadays.
http://www.technobuffalo.com/2012/0...f-materials-costs-207-238-depending-on-model/
Yea, by the 5S, I think they definitely should be able to offer the 5S 32GB as the $199 model. The NAND storage required for the 32GB iPhone 5 costs as much as the 16GB iPhone 4S. They likely kept the storage/pricing options the same to absorb the other incremental increases of costs (wireless chip, ect.)