Filters narrow the scope of a report. A value of a picklist field is made Inactive, but it is still selectable in the report filter.
Why does the Inactive picklist value still appear in the report filter?
The Allow inactive picklist values to be used in report filters option is selected in the settings.
An admin needs to deselect the Allow inactive picklist values to be used in report filters option by navigating to Admin --> Settings --> General Settings.
Vault Help Documentation: Inactive & Deleted Picklist Values