Michael Gordon, a professor of management at Rutgers University, observes:
Faculty members have not fulfilled the responsibilities associated with their proclaimed right to be the final judges of student performance. In shirking that duty, they have also neglected their broader obligations to society: Teachers weaken rather than bolster the commonweal when they fail to award meaningful grades. Grading laxness at all levels of American education has contributed directly or indirectly to a variety of problems, including declining scores on the SAT, decreases in the ability of American undergraduate and graduate students to understand prose, and poor training in mathematics and science, which puts American students behind their peers in many European and Asian countries.
(HT: Mark Perry's blog)
To be fair, grade inflation is not always the teachers' fault. It might also be a conscious objective of the school itself (in that case, public high schools).
In the spirit of March Madness, here is GradeInflation.com's grade graph of college basketball divisions.