That is probably eczema...you can take him to the doctor or you can just find what is irritating his skin. A hydrocortizone treatment could be recommended from his doctor, but it's not going to solve the root of the problem.

It doesn't hurt him at all, but it might itch. Milk products can cause eczema,or detergents/bath soaps. Change to natural products or ones for sensitive skin. You can also change to a soy based formula for now.