I was reading the paper authored by Simon Peyton Jones, et al. named “Playing by the Rules: Rewriting as a practical optimization technique in GHC”. In the second se
Aggressive inlining can derive many of the equalities that rewrite rules are short-hand for. The differences is that inlining is "blind", so you don't know in advance if the result will be better or worse, or even if it will terminate.
Rewrite rules, however, can do completely non-obvious things, based on much higher level facts about the program. Think of rewrite rules as adding new axioms to the optimizer. By adding these you have a richer rule set to apply, making complicated optimizations easier to apply.
Stream fusion, for example, changes the data type representation. This cannot be expressed through inlining, as it involves a representation type change (we reframe the optimization problem in terms of the Stream
ADT). Easy to state in rewrite rules, impossible with inlining alone.