Manchester City's capture of Sergio Aguero is the latest in a number of big-money moves in a summer that has also seen Manchester United and Liverpool invest heavily in new players.
"It is phenomenal. It's amazing the parameters that have now been set. It's very difficult for a lot of the Premier League, there's no chance of keeping up with that, you just can't compete," said McLeish, whose side face Chelsea in the final of the Barclays Asia Trophy at Hong Kong Stadium on Saturday night.
"You would expect that Manchester City would now be under a lot of pressure to win the league because of the spending power that they have but the top four, five, six teams are spending really highly and it's very difficult for us to compete.
"What we need to try and establish is a phenomenal team spirit, a will to win that the players will be prepared to have every single game in the season from the first whistle to the last whistle.
"We have some quality. We've got to believe that we can cause teams problems if we can have a great bond, a great team spirit. When Uruguay won the Copa America, they spoke about the spirit within the squad and it's a manager's dream really to try and harness that kind of spirit."
McLeish believes the Premier League has now become effectively a two-tier competition and does not feel Financial Fair Play rules set to be introduced in 2013 will significantly alter the English footballing landscape.
"It's kind of already developed that way over the past few years and now City have come into the reckoning with the spending power that they have," he said.
"Come 2013 and the Financial Fair Play, it will still be very difficult for the teams in the second tier. It's very difficult to keep up with the top teams but we've got try and we've got to believe that on any given day, we can beat the big guns as well.
"We're very conscious (of 2013). Randy Lerner wants to keep a grip on wages, we want to try and keep the sums in a way that the club can sustain costs. It's a good development for football, I think we'll see a lot of that.
"There's not been a lot of spending from the clubs outside of the top tier, whether there'll be a frenzy in the last few days of the transfer window remains to be seen."
With Charles N'Zogbia on the verge of becoming McLeish's second signing following the capture of Shay Given, the Scot confirmed he will likely be the last arrival at Villa Park this summer.
"I won't say categorically that's the end of it but we don't have any real plans to go out into the market the day after Charles N'Zogbia signs," he said.
"I'm still assessing the squad. We have looked at strength in depth and we believe that not only signing Charles and Shay Given enhances the squad, we believe some of the youngsters can emerge and players the club made a massive investment in last season that haven't quite fulfilled themselves in a Villa jersey."