Is he actually feeling an itching sensation, or could this be just a habit like picking one's fingernails or cracking knuckles? Does he itch anywhere else? If it's a habit, give him something to squeeze, like a small rubber ball. Does he only itch his bottom at certain times (when reading, or after meals, or when he's bored or feeling anxious)?
Have you tried switching to one of those "free and clear" detergents, with no fragrance or dyes, and not using fabric softener?
The type of powder matters. Don't use one with fragrance or cornstarch, or scented baby powder. Try something like Gold Bond or something that your pharmacist can recommend that is specifically for itching.
If he really is itching just in that area, you may need to talk to his doctor.