Preheat oven to 400°. Lightly grease muffin tins or use paper liners; set aside.
In a large mixing bowl combine flour, sugar, baking powder, salt, cinnamon and nutmeg. Mix apple, water, dry milk, oil and egg in a small bowl; add to flour mixture and stir until moistened. Stir in cereal. Spoon into prepared muffin cups, filling 2/3 full.
Bake 12-15 minutes or until wooden pick inserted in muffin comes out clean.