The Chelsea manager conceded that Roberto Mancini's team would be the side to beat during the 2012-13 campaign after the Blues suffered a 3-2 loss in the Community Shield
The 10-man Blues lost 3-2 to City at Villa Park on Sunday and Di Matteo admitted that he has a tough task in closing the gap between the sides - despite spending around £65 million on summer signings Eden Hazard, Marko Marin and Oscar.
"They are the champions," said Di Matteo. "We have to catch up 25 points from last season. They are the favourites, there's no doubt about it. United will be chasing City as well, they have a strong squad."
Chelsea took the lead against City on Sunday through Fernando Torres' 40th minute strike but always looked likely to lose their advantage following the dismissal of Branislav Ivanovic in the 42nd minute for a dangerous studs-up challenge on Aleksandar Kolarov.
Di Matteo suggested the decision to show Ivanovic a red card may have been a touch harsh and cited it as the turning point in the game.
"I watched it," he continued. "There was no intention from our player to hurt the opponent. It was a sliding tackle - sometimes red cards are given and sometimes not.
"It was a competitive game today with both teams trying to win the game, both sides were very determined."
"The sending off probably changed the game in favour of Manchester City. I think we competed very well up to that point and I was happy to go in at half-time with that lead.
"The second-half was always going to be very difficult with 10 men."