It's hard to blame any one piece of the system for inflating grades - everyone "wins" short term, and that's all this country cares about, from top to bottom. Students get their piece of paper so they can have at least a not-hopeless life, schools get their way overpriced tuition, administrators get their raises, companies get to pretend they hire smart people, etc. Governments know everyone wants their kid to go to college, so they make it easier to get people degrees.
If college continues to be a requirement for most of the basic jobs people receive then this will continue. Most of the workforce doesn't need a college degree. The things they learn in college they will never, ever use, and most of the jobs don't actually require critical thinking like is constantly waved about whenever these conversations come up.