Why is the Coles share price getting off lightly today?

Coles shares are getting a small reprieve from the ASX 200’s falls on Friday.

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Key points

  • It's been an awful end to an awful week for the ASX 200 so far this Friday
  • The ASX 200 index has lost 2.18% so far today and is now back below 6,500 points
  • But the Coles share price is being spared the worst of the falls

Unfortunately, it’s looking like it’s going to be a depressing end to a depressing week for ASX shares so far this Friday. At the time of writing, the S&P/ASX 200 Index (ASX: XJO) has lost another painful 2.18% and is now back below 6,500 points.

With such a move, most ASX 200 shares have been sold off today. But what of the Coles Group Ltd (ASX: COL) share price?

Coles shares have indeed taken a hit today. But the supermarket share is currently down by 1.13% at $16.610 a share. That’s not a pleasant move by any means. But it is also a marked underperformance of the broader market.

Other ASX 200 blue chip shares like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP) and Woodside Energy Group Ltd (ASX: WDS) have fallen far harder today. In BHP’s case, the miner is down by a nasty 3.7% so far today.

So how is the Coles share price getting off so lightly?

Well, it’s not entirely clear. Coles hasn’t released any news or announcements itself today.

But we can speculate.

Why is the Coles share price defying the worst of the ASX 200’s woes today?

So the big falls we have seen over this dreadful trading week have arguably largely stemmed from fears over inflation and interest rates. This week saw the US Federal Reserve hike American interest rates up by an unusually large 75 basis points.

Earlier this week, my Fool colleague Tony covered how experts are describing inflation across the US, United Kingdom and Germany as “the highest rate for 40 years”. Sobering stuff.

So it’s fair to say that investors are worried about high inflation and interest rates right now.

Why is this relevant for Coles shares? Well, Coles is seen by many investors as an inflation-proof investment.

As my Fool colleague Tristan covered last month, Coles is a well-placed business to take advantage of rising prices. That’s because of its nature as a provider of consumer staple goods like food, drinks and household essentials.

No one likes seeing food go up in price. But it’s not like any of us have a choice whether to buy it or not. Thus, if Coles can maintain its profit margins by passing on rising prices to its customers, rising inflation actually has the potential to boost the company’s profits.

What does the expert say?

At least one ASX broker agrees. As we covered just yesterday, ASX broker Citi is currently bullish on Coles shares.

Noting that “there were no observable signs of trading down or lower volumes in response to higher food inflation” in Coles’ recent trading update, Citi put a buy rating on Coles shares. That was complete with a 12-month share price target of $19.30. If that were to come to pass, it would result in an upside of more than 16% on current pricing.

So it could be this reputation as an inflation hedge that could be keeping the Coles share price from the worst of the ASX 200’s falls this Friday.

At the current Coles share price, this ASX 200 share has a market capitalisation of $22.19 billion, with a dividend yield of 3.67%.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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