You have to first understand what inflation is? Inflation is increase in supply of money without corresponding increase in supply of goods. Too much money chasing too few goods. That drives prices up. Now, increase in CRR means less availability of money to lend and it means less buyers of goods and it means prices going down. If you look closely at the sale of most of the items in the market (automobiles, machinery etc) you will notice that most of it is financed by the lending agencies, meaning banks. So, you can very well understand if banks have less money to finance then it means fewer buyers in the market. Thus supply remaining same, with less number of buyers, prices will come down.
