Lewis Hamilton finished a strong third in Sunday’s race in Montreal.
He pushed Fernando Alonso hard for second, who wasn’t too far behind race winner Max Verstappen.
It’s been an impressive upturn in form for Mercedes, who seem to be performing better since their upgrade package was introduced in Monaco.
Hamilton has finished on the podium in the last two races, reducing the deficit to Red Bull.
Wolff has already revealed that Mercedes will introduce two more upgrades at Silverstone and then either Hungary or Belgium next month.
Speaking after the race in Canada, he said: “The update works. That was the track where we were most worried that the car was not fast. At the beginning of the year, we would have been driven into the ground on such a track.
“We are there, perhaps a tenth slower than Alonso, who brought a mega update, and not so far away from Max. Another huge step forward.”
While Mercedes are on a good trajectory, Wolff conceded that there’s “quite the gap to catch up” to Red Bull.
“For us we didn’t expect to perform in Canada because of the car’s DNA at the moment, so it’s encouraging to be not so far away,” Wolff stated.
“But one must not forget Max is still having an easier time in the front, not cruising but still I think there is margin. So there’s quite the gap to catch up.”