When money supply increases faster than goods supply, the prices of goods increase as an answer of the high demand and low supply. When there is less of a specific product, people would be willing to pay more for it. When money supply and prices increase, this also reduces the purchasing power of money. With the same amount of money you can buy less.
Gold supply in WoW increases constantly because people get gold from questing and looting, which is "created" and enters the realm's economy. This is offset by prices of services, such as talent respeccing, training cost, mount cost, reagents, auction commissions, mailbox fees, or even haircuts - any type of gold spent which doesn't reach another player 1 for 1 is a way to reduce this constant gold increase. However, on such a high population realm few people can actually get their hands on materials as there is huge competition - players flying around, camping for mining nodes or picking herbs. This causes reduced goods supply and increased demand, and that causes inflation. Before you know it the prices of normal goods go up significantly higher than what their normal price should be, only because they're nowhere to be found. A good example is fel iron ore, which is very rare in Outland, so its price is very high. However, fel iron ore is not a part of the average player's goods basket, so people simply push through it and then forget about it. The problem comes when this happens at 80lvl. Imagine all the people with mining online at peak times trying to get their hands on some saronite. Now imagine all the people with mining-related professions eating out saronite bars as if they were chocolate bars as soon as they enter the auction house. It's OK when this only happens now and then, but it's not OK when such a situation becomes the norm, which is exactly what happens in Lordaeron. The supply for saronite won't magically go up simply because people are already farming it to its max. The demand, however, increases with the more players. This causes the price on one of the major 80lvl goods to increase and can lead to inflation if it happens to other goods.
There are three main reasons for inflation on Warmane:
1) People doing quests and looting - getting gold from the game. This is totally normal and increases with the more people playing the game.
2) The huge population, which drives to higher demand from everyone who wants to buy stuff. This is not an issue which can be handled easily, as players will get frustrated the less purchase power they have.
3) Again, the huge population, which doesn't allow all people with professions to farm effectively, which drives to lower supply.
Now that I've defined these three points, I actually came up with two other suggestions: 1) can be handled by reducing gold gain from daily quests; 3) can be handled by reducing respawn timers on nodes, herbs, and mobs overall (adaptable respawn time, just like on Blizzard). Yes, I know both options are cancerous - I'm just pointing them out as possible.