Policy in office 365 to block users after a period of inactivity

There is no policy built in to Office 365 that matches what you're describing (automatically block users from signing in after a specific period of inactivity). You could however create an https://azure.microsoft.com/en-us/services/functions/ or a scheduled task on a server to run a PowerShell script to find inactive users and block them on a regular basis. That would be my best approach to this.

I'd be curious to hear more about the use case for this though. Is this a security measure?