In this article, George Leef makes a number of cogent arguments about how contributing to grade inflation harms not only those grades are inflated but also those whose grades are not inflated.
There is another way to think about this. Giving students inflated grades is a way of puffing them up. Since "charity vaunteth not itself, is not puffed up" (1 Corinthians 13:4), are we showing charity by puffing other people up?