I think you are probably just sensitive to it. I am, too. Since I started knitting though and going to LYS I'm finding that not all wools are created equal. I don't know if I'm brave enough to knit an article of clothing out of it, but I might try a scarf of some nice merino or a blend. Some of them are amazingly soft! If you are concerned though there are plenty of other yarns available that are very nice. BTW..I got the Bernat Denim Style at Joanns.
Here's a link to "allergy vs sensitivity