The inflation occurs when 1. a new character queues, and 2. when a player wins more points than the opponents lost.
Deflation occurs when a player lose more than the opponents win, which happens much less often because it requires a very uncommon mix of ratings and MMR in the match-up.
This is what happened in BFA s1 for a while, as an example. They had turned the “knobs” in the matchmaking and win/lose values in a way that made the ladder inflate more than what was “normal”. Basically they had tuned it for a lower expectancy of character participation than the amount that actually participated.
It was fixed before the season ended, but that didn’t stop a lot of people from obtaining achievements they otherwise would’ve been unable to, and led to the top players going even higher.
Bewarê:
the rating pool inflation isn’t determined entirely by the amount of characters participating anymore. Blizzard is in full control of the rating pool inflation, so they can make the top of the ladder reach 3.3k every season regardless of the participation numbers.
Blizzard have been in control of the inflation ever since the start of WotLK. It was only in Burning Crusade that the participation numbers directly determined the rating pool inflation.
They changed a lot of it in WoD with the sudden loss of close to 5 million subscribers over a couple of months, and haven’t reported subscription numbers since.
Basically, they were forced to take more direct control of it once so many players quit playing.
Btw, there’s a fundamental flaw in this method. It affects queue times.
The way the matchmaking works is that it starts out in your own rating range of MMR, and then continues expanding the parameters until it gets a match. So with a more dense player population, queue times becomes faster if there are fewer rating ranges.
But because they don’t seem to properly adjust the amount of rating ranges in the matchmaking all the time, it affects queue times when they overlook it. Which leads to players often blaming player population for the increased queue times when that happens, when in fact the amount of players is almost irrelevant.
They had also changed it for the removal of battlegroups together with the launch of S14.
It’s just the “inner workings” of their system, which isn’t announced in change logs. It’s easily inferred as long as you understand the fundamental principles of rating systems on a mechanical level though.