This is just an assumption as an example, if 5 million bitcoins can never be recovered again, then that would lower the maximum limit from 21 million to 16 million. So it is true as you said that the price of bitcoin will increase many times because the number of bitcoins is increasingly limited.
The more Bitcoin are being lost the more the supply of Bitcoin is reducing, it won't reflect officially on the total supply of Bitcoin that is 21 millions but we can't have 21 million Bitcoin trading in the market because some of them will be lost by early users and future users and there are some individuals that'll die without anybody being available to claim their Bitcoin as they didn't tell anybody about their investment in Bitcoin because of security reasons. The lost Bitcoin are lost forever and will never be recovered. The price of Bitcoin will always increase because halving reduced the reward for miners and it reduced the supply of Bitcoin being introduced into the market. The lost Bitcoin also helps to make the Bitcoin will hodl to be valuable and this is why we have to keep holding the Bitcoin we own.