I mean you explicitly uploaded those to have Google archive and organize them for you. That's exactly what Google is doing here.

They didn't go out of their way to obtain your photos and run their categorization stuff on them.

I read it as trying to describe the act of image recognition, rather than the business practice of routinely applying it to users' private-ish data. The "seemingly mundane" part is because image recognition is so easy for people that we take it for granted, not that auto-scanning people's photos is or should be considered mundane. I agree it's not worded perfectly.

I'd go even further and say in the absence of any sharing of those tags etc or using it to advertise what's the issue with running them through a neural net like they do?