Again, this may be an important difference between members of the two groups, but like any conflict between groups, the differences in identity are what get played up and pointed out, when the differences are rarely the _reason_ for the conflict. They're a way to manipulate people into joining a side, or to cultivate political resentment, or to explain a complex situation in a simple way for a mass audience. But such reporting only buys into and amplifies the artificial distinctions that feed the conflict. The reporters do no favors to these people by oversimplifying the situation.
The GO suggested "Arakan people", but that would imply that Rohingya are not inhabitants of Arakan, which would be plainly wrong and politically biased. For the same reason "Arakanese villagers" is not possible. "Non-Rohingya" is unambiguous, but not suitable for many reasons.
Moreover, some Buddhist monks had public preaches violently against Muslims, so the religion played a role in this conflict.
Lastly, if you open any history book about the last world war, you'll read about "German" soldiers committing crimes against Jews. They did not commit these because they were Germans, nor did every German from these years bear responsibility for these, but the word is still appropriate.
What do you propose we do? There is "mass murder" all over the world, and as the major faiths go, Christianity globally is much more zealously persecuted than Islam. Why is this particular flash point of religious strife being given such a disproportionate amount of attention by Reuters and other major western media outlets?
Unfortunately more important than the victims themselves in this story is the confirmation Reuters has now provided to so much of the rest of the narrative about Rakhine. Soldiers disguised themselves while committing atrocities. We know this now because Reuters found paramilitaries and police officers to confirm it. Orders were specifically given to "clear" Rohingya villages. Same. Buddhist neighbors torched the village itself. We know this because Buddhists have now admitted to it, to Reuters. The government fabricated a terrorist attack. We know because the victims of the supposed attack deny it occurred.
What happened in Inn Dinn was too systematized to have happened only in Inn Dinn. It happened, in general, throughout Rakhine, the way the Rohingya displaced said it did.