Having finished an impressive third in the Barclays Premier League last season, City have moved up a gear this term and are currently second behind United on goal difference.
New signings Sergio Aguero and Samir Nasri have integrated seamlessly into Roberto Mancini's side, while David Silva and Edin Dzeko have established themselves as bonafide Premier League stars.
And while many have been shocked by City's blistering performances so far, Ferguson insists he knew all along that their time would come.
"I've said all along that would happen," Ferguson told Inside United.
"They are a good team and they were always going to be there or thereabouts."
And with the Manchester derby looming on the horizon, and many already predicting the match to be a potential title decider, Ferguson admits his side will have to be wary of City, and in particular, the danger of Aguero and Silva.
"Sergio Aguero was bound to do well, coming into the Premier League, because he is such a goal threat around the penalty box.
"David Silva is also a very good player.
"We just have to make sure we are ready for City when we meet them [on October 23]."
And Ferguson concedes City's rise now meant that Manchester derbies will have an increased significance.
"All derbies are big now, that is the nature of the landscape.
"The impetus City now have - they have a huge squad of players and the financial power to attract some of the best footballers in the world - actually changes the focus of the derby these days.
"The talking point isn't so much the actual game but the dynamics of how Manchester City have changed football and what we do to compete with that."
United will have a good opportunity to warm up for their clash with City with another high-profile match the weekend before, when they travel to Anfield to play Liverpool on October 15.