If grades are increasing, but standards have remained the same, then grade inflation should not be a cause for concern, but would be a positive development. Grade inflation would reflect an improvement in students' work. If, on the other hand, grades are rising because standards have been lowered, then grade inflation can be taken as a sign that the quality of students' work is either not improving or decreasing.
The noted problems with any possible lowering of academic standards associated with grade inflation include:
Grade inflation makes it more difficult to identify the truly exceptional students, as more students come to get the highest possible grade.
Grade inflation is not uniform between schools. This places students in more stringently graded schools and departments at an inequitable disadvantage.
Grade inflation is not uniform among disciplines. In the United States, it is commonly asserted that grade inflation is more pronounced in the humanities than in the mathematical sciences, leading students to avoid taking classes in the sciences which may prove to be beneficial to them.
Arguments against these points include:
It is not a school's job to sort students.
Higher grades at some schools reflect better performance.
Although grade inflation doesn't evenly distribute through departments, it is arguable, due to the subjective nature of grades, that interdepartmental grading practices were not even in the first place (e.g. how is one supposed to determine the English equivalent of an A's worth of work in Physics?)
Similarly, if one believes the purpose of a school is to better oneself and gain an understanding of the subjects, then one might not care too much if people are getting better grades than before regardless of the cause. Indeed, it could be construed as a positive development since it might lessen the effects that some say grades have.
For schools that do not modify their letter grade against grade-point reference regarding AP classes often inflate grades by means of an "AP curve" (the formula for which is y = 10\sqrt{x}), where x is the true grade and y is the curved result. The effect of this curve increases for lower grades: a grade of 100 is unchanged, whilst a failing grade of 36 is padded by an additional 24 points, thus making it a close pass in most jurisdictions. The AP curve is generally considered a fair retribution for the added difficulty of AP classes.
Furthermore, those who use grades in determining life outcomes for a student must act as if grade inflation has not occurred, taking the grades at their old, pre-inflated values - otherwise they could simply adjust and grade inflation would not be a serious issue. This could happen either due to neglect, or due to constraints of the grading system itself. For example, if the grading system stipulates an absolute maximum grade, then the problem of picking out the "cream of the crop", discussed below, naturally comes into play.