"because she had heard that flour will explode if it's treated like that near a flame."


Lyra is referring to dust explosions. This is a hazard in coal mines, where coal dust explosions are common. But any powdered combustible material in an enclosed atmosphere can result in an explosion. This includes materials commonly known to oxidize, including mundane items like sugar, powdered milk and flour. 

As seen in the video, flour will even explode if it's thrown with some force into an ordinary campfire.