No prices went up. I think you might be comparing the list rate to the rate if you use the VM continuously (i.e. if you get full sustained use discounts)
I work in Product Management on App Engine, and I'd like to assure you that we're continuing to invest in the product. We already support Java 8 in beta on Managed VMs (https://cloud.google.com/appengine/docs/managed-vms/), and the same is true for Python 3. Once Managed VMs goes GA, we expect that most of our customers will find that it provides all the benefits of App Engine with increased flexibility around the programming language, native code, etc.