Carlo Ancelotti's side have made a blistering start to 2010-11 and are currently perched at the top of the Barclays Premier League table holding a five-point lead.
The Reds, meanwhile, have enjoyed something of a resurgence in recent weeks, winning their last two league outings against Blackburn Rovers and Bolton Wanderers following a mixed opening to the campaign.
And while Carragher acknowledges games don't come much tougher than Chelsea, he is optimistic Roy Hodgson's side can build on their improved displays by firing a statement of intent against the Londoners.
He told Liverpoolfc.tv: "Winning breeds confidence. We haven't had as many wins as we would have liked this season, but hopefully we can go on a little run now.
"It's a lot better going into the game after two (league) wins than going in on the back of two defeats, as we have done in a lot of games this season.
"We haven't done as well as we would have liked, but hopefully with the results we've had the tide is turning and we can look onwards and upwards.
"Chelsea is a tough game. We've had some games with them over the years now, so we know what to expect - and they'll say the same.
"It's going to be difficult for both sides, but with the way we're going into the game hopefully we can get something out of it."
Chelsea have lost just once and conceded three goals so far in the league this season - form that Carragher believes makes them the yardstick all other title hopefuls need to aspire to.
"It'll be the biggest test. I think they're the best team in the country and have been for the last few years," he continued.
"Whenever you play Chelsea it's a massive test. They've been a top side for the last few years now and we've given them some great games.
"We've dropped off in the last couple of years and they're the benchmark - that's where we need to get.
"They're top of the league and to have a five-point lead at this stage of the season is a great start. We have to respect that, but that respect will go out of the window to a certain extent on Sunday because it's vital we get the three points for ourselves."
Chelsea have plundered 27 goals in 10 league matches, with ex-Liverpool forward Nicolas Anelka their top scorer having notched 10 in all competitions.
With the likes of Didier Drogba and Florent Malouda also in their ranks, the Londoners pose plenty of goal threat - but Carragher is relishing the task of thwarting the Blues' frontline.
"It's what you're in the game for - to play against the best players in the world and pit yourself against them," he said.
"I've done that throughout my Liverpool career and I want to do it for as long as possible. That's what the game is about."
He added: "The likes of Chelsea, Manchester United, Arsenal, Everton and Spurs - these are the top teams in the country. Liverpool should be up there challenging with these teams and it's up to us to get good results in these games.
"Beating these teams will certainly propel you up the table."