City suffered a crucial blow in their pursuit of the Premier League title after drawing 3-3 with Everton at the Hill Dickinson Stadium on Monday night.
Arsenal now know three wins from their final three matches will secure a first title since 2004 as City pray that they will slip up in the remaining fixtures.
The Gunners could win the league as early as Wednesday, 13th May depending on results elsewhere which puts even more pressure on City to be perfect.
Speaking after the game, Carragher admitted that the result puts a dent in what was an exciting title race.
"We don't know if that point will be vital towards the end of the season," Carragher said on Sky Sports. "It almost feels like a situation where almost everybody's disappointed.
"I think Manchester City will be disappointed because they were kind of at ease at 1-0. Arsenal sat at home, even though their biggest rivals have dropped points, Arsenal players, supporters, manager will be absolutely devastated that it could have been a defeat.
"Maybe it should have been, but what a game. Unbelievable."
City have three home games remaining against Brentford, Palace and Aston Villa, on the final day of the season and manager Pep Guardiola knows that his side must be exemplary if they are to stand a chance against the North London side.