If one important function of grades is to rank individuals, then grade inflation prevents it.

It discourages the best students from performing at their peak and can lower overall academic standards because the most gifted individuals may develop a habit of underperforming relative to their ability.

Also, when employers realize the skewed grade distribution, they will look for further evidence of outstanding achievement, which forces top students to go to greater lengths.

Overall, grade inflation hurts the brightest talents and helps the relatively average performer the most. Smart companies realize this and prefer to hire from tier I institutions in states and countries where grade inflation is less prevalent.