Bump Python version in runtime image

[amotl]

Other than establishing compatibility with newer releases of Python, we also want to bump the version for the runtime image.

Just to clarify - are we planning to update the Dockerfile to Python 3.11 in a future PR? Right now, this ensures compatibility in CI but doesn’t impact the runtime environment right? or maybe we should also let the integration tests on k8s run with 3.11 here as a first step?

Originally posted by @tomach in #549 (comment)