Actually, he was referring to Itachi. AND he meant Itachi´s way of the ninja was better than his own, he was NOT talking about power since he has never even seen Itachi, all he said was based on what Sasuke was telling him (All the things Itachi did for the village).
SO after hearing all that he said Itachi was a better shinobi than he is ( Selfless,wise) but obviously power was not included when he said all those things.
The First Hokage is just a humble all around nice guy, who acknowledges Itachi´s sacrifice in favor of others.