The two teams played out a tempestuous 2-2 draw at the weekend and the Sky Sports pundit thinks that the ability of Pep Guardiola's players in the final third makes City stronger than their nearest challengers.
Speaking on 'The Gary Neville Podcast', Carragher said: "I just look at that attack Manchester City have got, and Kevin De Bruyne wasn't playing today - I know Martin Odegaard doesn't play to be fair as well - but I just think they've got a little bit more in those attacking areas.
"I just think they've got a little bit more, and if Arsenal had held on, it would have been a set-piece goal, and we know they're amazing at set-pieces, we saw it last week, they won the game at Tottenham, but you can't win the game on set-pieces every week.
"Sometimes it's got to [be down to] the quality of your players, or the finishing, I just think Manchester City have the edge there."
Neville had tipped Arsenal to win their first league title for 20 years at the start of the season but thinks that the last-minute equaliser from John Stones could be pivotal in the final reckoning due to the relentless standards reached by City in recent seasons.
The former Manchester United player said: "You just think, where will we be in April and May with this game? Will we be going back to that final minute, and what happened with the John Stones goal, will we be thinking that City win the title by one point, and that moment determines it?
"It's ridiculous, because there will be dropped points, and there will be mistakes, and there will be lots of victories before the end of the season, but it is that type of situation when you're up against Pep Guardiola, he makes you feel that way."