Grades are the reason students do schoolwork. Without grades, what would be the point? Education for its own sake? :-)
Despite the sarcastic tone, I'm very sympathetic to students who want to get good grades; I was one of them. Grades were, and for many students are, an extrinsic motivation to do one's best.
But that's not necessarily what they're for.
Grades are supposed to be a snapshot in time of a student's progress to date. They're supposed to combine mastery of material (tests), preparation (quizzes), and work expended (assignments and/or projects) into a neat little package. Personally, I weight academic performance and mastery of material rather heavily (50% of a grade comes from tests, another 30% from quizzes). My objective is to teach math and assess student learning in math and my grading policy matches that objective.
The grade I assign (or "calculate", but never "give") does not reflect a student's value as a person, whether or not I like that student, or how hard I think that student might have worked in or out of class. It is an objective assessment of performance. The only subjectivity in my grading is in determining how much, if any, partial credit to grant for wrong answers.
In an effort to be impartial, I'm relatively inflexible in grading. I use a computerized spreadsheet to calculate grades, rounded to the nearest tenth of a percentage point. Cutoff scores for each letter grade are posted. Students receive their work back weekly, and current grades (and the data supporting them) are posted by student ID number, not name, weekly. Students thus have plenty of opportunities to identify and correct any bookkeeping errors on my part or to argue for additional points after a test or quiz. The inflexibility comes in not changing letter grades.
"I have a 79.8%. Mr. So-and-so rounds that up to an 80%. Why do I get a C+ in your class?" Questions like this occur every grading period. If I rounded to the nearest percentage point like Mr. So-and-so, I'd have people with 89.4% complaining that they're only a tenth of a percentage point away from an A-. A line must be drawn somewhere if my grading is to have any integrity at all, and to me, 79.9% is a C+ and 80% is a B-. Arbitrary, perhaps, but not capricious. Nor is it negotiable. I won't change a grade because I like the student, or because a parent calls, or because the grade I assign will keep the student out of Harvard or Stanford or even Sac State. Students are well aware of my standards. It's up to them to reach those standards, not up to me to lower them.
Grade inflation? I don't think so. Not on my watch.