The Ivorian forward scored from the penalty spot against Villarreal on Thursday for his 10th goal involvement in this season's Europa League, more than any player in the competition.
It did not surprise Arteta, who is delighted with the way Pepe is developing.
"I think he's come a long way in the last few months," our manager said. "His work ethic has been phenomenal and he's deciding many more games and doing what he can do in the final third in a much more consistent way.
"So I'm really happy with his performances and now he needs to continue like this.
"Confidence in every player is crucial and every time you step on that field, if they feel secure, if they feel protected, if they feel like they're supported by their manager and their team-mates, it's something that is crucial to be able to perform.
"Then with the things that he could do better, he's doing much better with as well. But it's all a mix that is reflected in his performance."