Victory over Bournemouth on Sunday saw City move into second-place, six points behind the Gunners.
Guardiola said: "We are six points behind Arsenal, who look unstoppable right now because they play fantastic.
"They don’t concede goals, they are so solid, they can score from many different situations, positions and many players.
"But even with that, I think when we make this step a little bit better (more players start scoring), we will be closer, games will be more tighter and we will be able to win."
However, Guardiola is also upbeat on his City team and their chance of hauling in the leaders.
"I had the feeling since the Club World Cup that we were in a good moment," he said. "It’s just 10 games, still 28 to play. Many things are going to happen but the important feeling is to be better and better."