Loss of the volume in brain areas in depression is related to both increased neurodegeneration and decreased neurogenesis. In physiological levels pro-inflammatory cytokines promote neurogenesis, but pathological levels inhibit neurogenesis and initiate apoptosis, both processes leading to the reduction in brain volume seen in depression  
Depression is associated with inflammation (elevated pro-inflammatory cytokines: IL-1, IL-6, TNF-α,, IFN-γ, NFκB and inflammatory markers: elevated haptoglobin, PGE2, CRP, adhesion molecules – in both cerebral spinal fluid and serum) and also immune suppression (low natural killer cell cytotoxic capacity (NKCC) and low lymphocyte proliferation). The co-occurrence of inflammation and immune suppression is also seen in cancer and can explain the associations between depression, cancer and autoimmune diseases (such as MS and RA)  
Chronic inflammation and immune suppression may promote each other. Chronic exposure to TNF-α reduces T cells receptors and suppresses the function of T cells and NK cells. This in turn impairs lymphocyte proliferation and lowers IL-2. IL-2 operates in a positive feedback loop whereby proliferating lymphocytes secrete IL-2 and IL-2 promotes proliferation. T cells normally switch to secreting IL-10 if there’s evidence (high IL-2) of an adequate immune response. Depression is associated with impaired lymphocyte proliferation, low IL-2 production and consequently vulnerability to infection, low IL-10 and unresolved systemic inflammation .
Evidence to support the role of inflammation in depression:
- IL-6 can induce depression in animal models 
- TNF-α promotes glutamate neurotoxicity and inhibits cell survival  and inhibiting TNF-α reduces depressive symptoms  
- IL-1β production correlated with an earlier age of onset and longer duration of illness with dysthymia (like depression but milder and longer)* 
- SSRIs reduce IFN-γ and increase IL-10 and revert immunological dysfunction described in depression and anxiety disorders 
- Aspirin and other anti-inflammatory drugs enhances the effect of SSRIs  
- An immudomodulatory vaccine to increase Treg cells had an antidepressant effect similar to SSRIs 
Sources of chronic inflammation are related to depression:
LPS increases IL-1 and TNF-α in the hippocampus and decreases BDNF and neurogenesis. Animal models of depression can be induced by LPS and in humans LPS acutely increases depressive and anxious symptoms, psychomotor retardation and cognitive disturbances. People with depression tend to have elevated IgM and IgA against gut bacteria  and elevated MPO 
Ethanol (alcohol) is highly inflammatory to the CNS in a similar manner as LPS  and it decreases neurogenesis . Alcohol abuse is associated with depression  and lower brain volume .
Inflammation tends to increase ROS and oxidative stress, which may lead to mitochondrial dysfunction, then a positive feedback loop of oxidative stress, inflammation and apoptosis. MDA and markers of DNA damage are associated with depression  and impaired energy metabolism can lead to dysfunctional neural communication 
Homocysteine increases oxidative stress and also reases glutamate and stimulates the glutamate receptor (NMDA), promoting excitotoxicity, which inhibits repair and increases apoptosis in hippocampal neurons. Elevated homocysteine is associated with a higher rate (150%) of hippocampal atrophy  and depression .
* Early age of onset for depression is associated with lower NKCC 
** There are higher levels of inflammation in the post-partum period which may partly explain post-partum depression 
*** In the previous post I mentioned exercise, zinc and LCO3 increased neurogenesis and are therapeutic for depression. But they also reduce inflammation as well  
**** People with depression tend to have a higher CD4+:CD8+ ratio (helper:cytotoxic), which is also seen in autoimmune diseases and cancer, may represent inflammation + immune suppression, and is a consequence of zinc deficiency 
Stress and Glucocorticoid Resistance
Depression can occur with medical illness (such as autoimmune diseases, inflammatory diseases, infectious diseases, tissue damage or destruction) and in these cases the origin of inflammation makes sense . But what about trigger for otherwise healthy people.
Stressful life events often precede depression. In acute stress, elevated levels of glucocorticoids (cortisol and related hormones) are neurotoxic to the hippocampus and decrease serotonin synthesis, reducing the concentration of the neurogenic growth factors, which ultimately decreases neurogenesis. The negative effects of stressors are present even after cortisol levels normalise   . This can progress into a positive feedback loop whereby less neurogenesis produces fewer newly formed hippocampal neurons, and because these newly formed hippocampal neurons inhibit HPA axis activity, now there are even more glucocorticoids and even less neurogenesis* .
Psychological stressors also activate an inflammatory response (elevated pro-inflammatory cytokines in the blood and brain) , and newly diagnosed patients of depression exhibit a higher amount of inflammation . Key inflammatory cytokines such as NF-κB impair glucocorticoid function and increase the production of less active glucocorticoid receptors. Also during depression or chronic stress the glucocorticoids can lose their anti-inflammatory effects and not suppress the HPA axis (negative feedback). These two mechanisms promote glucocorticoid resistance (GCR)**  .
GCR is associated with chronic inflammation (because glucocorticoids are anti-inflammatory), elevated serum cortisol (because of an overactive HPA axis). Depression is association with chronic inflammation and elevated serum cortisol and 40-60% of people with depression have GCR. Although there seems to be two types of depression: a melancholic/psychotic type with hyperactive HPA axis and GCR, and a non-melancholic/psychotic type with elevated inflammation   
* Rats without an adrenal gland are protected against hippocampal atrophy during stress 
** My guess is that a sign of GCR is having a cold and experiencing symptoms during stressful events (exams, public speaking, etc). In which case the glucocorticoids released from stress aren’t adequately suppressing the immune response that produces symptoms.
(1) RHR: Chronic Stress, Cortisol Resistance, and Modern Disease