Currently, when one marks an Item as "Inactive", it really doesn't do much of anything to hide it or get it out of the way.
Search and reporting within Finance should, by default, hide inactive Items from standard reports, searches, etc. If one specifically wants to look for an inactive Item, the report could be customized.
This is a minor irritation to me, with maybe 5-10% of my thousand-ish Items being inactive. But I know there are other use cases with lots of product changeover that can lead to 80+% of Items being inactive over time.
It makes sense for standard UI operations (searches, reports, etc.) to hide inactive Items by default. That would be the expected behavior.