That's my wife's experience, teaching at a smaller state college. They offer a math course so remedial that it's not allowed to count as hours toward graduation

That's my wife's experience, teaching at a smaller state college. They offer a math course so remedial that it's not allowed to count as hours toward graduation (it does of course count toward full-time status). There's a placement test that determines if it's needed. A serious percentage of the class fails, and these are engineering hopefuls. They had one professor who had a much higher pass rate from this remedial course, but that professor's students invariably did objectively worse by several standard deviations than students who had passed the remedial class at any grade ("Ds get degrees") with any other professor. Part of the issue with poor grades in this remedial class is a failure by students to take it seriously. They're incredulous that they need to take it; after all, they got all As and Bs in high school, and completed through calculus! One would think that bombing the placement exam and failing the first exam in the remedial class would be a wake-up call, but apparently not. So, yes, actual grade inflation must be a problem, at least some of the time.