Following Ferrari's one-two triumph in Sunday's Monaco Grand Prix where Sebastian Vettel's notched up victory ahead of grim-faced team-mate Kimi Raikkonen, the scarlet scuderia are on top in both the drivers and constructors championships.
"We were well beaten and so I think we are the underdog and we need to catch up," said Wolff as the tifosi celebrated with enthusiasm all around the Mediterranen principality. "This is the new reality."
It was a landmark win for Ferrari, their first in Monaco since 2001 and a first 1-2 since 2010.
Controversy in Monaco
It was clearly apparent that four-time champion Vettel was favoured by Ferrari for victory over his Finnish team-mate, who had taken pole position and led the race comfortably from the start before being called in for an untimely early pit-stop that gave Vettel the initiative.
That was certainly the view of most observers including Mercedes' title challenger three-time champion Briton Lewis Hamilton who, like Wolff, does not welcome the prospect of adopting a similar favouritism strategy at Mercedes.
"I haven't spoken to the team, and I don't really plan to," said Hamilton, who finished seventh while team-mate Finn Valtteri Bottas was fourth. "Valtteri's doing a great job. I don't currently feel that we have to favour one over the other. "It's really important that we work as a team, more than anything, as we have been. There might be some things along the way positioning wise which, at some stage, become valuable, but - who knows? -- it might go the other way and I might need to give Valtteri the upper hand.
"I really have no idea. We've just got to make sure we're ahead of them so we don't need to be in the same scenario."
Hamilton, described by Wolff as a 'team player' this season after years of scrapping with retired 2016 champion German Nico Rosberg, is now 25 points adrift of Vettel in the drivers' title race.
"They deserved to win because they had the quickest car out there," said Wolff. "But the underdog is the one that people want to see winning. As a matter of fact, I think we have been that since the beginning of the season. "We have been dropping in and out of the 'tyre window' and never had two cars within that window over the course of whole weekend."
Hamilton looks to Canada
Hamilton, who struggled all weekend in Monte Carlo, will now aim to bounce back at one of his favourite races, next month's Canadian Grand Prix, but has admitted he faces a major challenge.
"Trust me, I will be pushing and the guys will be pushing to understand it because we don't want this again. One more race like that and we will be much further behind - it is hard to get to within six points and in firing range, but bit by bit we will chip away at it."
Asked about Ferrari's strategy, Hamilton told reporters: "It's clear to me that they have chosen their number one driver so they're going to be pushing everything to make sure Sebastian will get the maximum on all of his weekends.
"It's very hard for the leading car (here) to get jumped by the second car unless the team decide to favour the other car... so that's very clear." He added: "The Ferrari seems to work everywhere so these next 14 races are going to be very difficult. "Our car is not working everywhere we go, but the more races we do, the more we learn and the stronger we get.
"The Ferraris are not bullet-proof and they have things coming up too, potentially, with all the turbos they have used. So we will see."