The problem is that the common societal perception is that you are an idiot if you don't get some level of college education. Societal standards are what drives demand for degrees. Given a surplus of applicants, and everything else equal, an employer will choose the applicant with the highest degree. This trend is noticed by the public, which only perpetuates demand. The result: you need an associate's degree to take an X-ray, an MBA to be an executive, and a BS or BA to do any job above technician/blue-collar work.
In summary, "degree inflation" is the fact that you need a higher degree, GPA, etc., to do the same jobs as someone with a lower degree a generation older.