It's absolutely deliberate. Toward the bottom of the "new materia born" function contains the code to do this.
What ticks me off is there's no indication that this is happening and this mechanic went virtually unknown for fifteen years! I can find no mention of it on GFAQs, the French ff7 page (admittedly I can't read French), FFwiki, etc. I actually posted a vaguely worded message relating to this
a while back but didn't explain what I meant. The game should have you choose what to do with the new materia rather than just dump existing inventory. If you're grinding for a Master Magic this can really screw you over since Fire, Ice, etc. are so low on the priority list.